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Trust and Growth

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Author Info

  • Zak, Paul J
  • Knack, Stephen

Abstract

Why does trust vary so substantially across countries? This paper presents a general equilibrium growth model in which heterogeneous agents transact and face a moral hazard problem. Agents may trust those with whom they transact, but they also have the opportunity to invest resources in verifying the truthfulness of claims made by transactors. We characterise the social, economic and institutional environments in which trust will be high, and show that low trust environments reduce the rate of investment. The predictions of the model are examined empirically for a cross-section of countries and have substantial support in the data.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 111 (2001)
Issue (Month): 470 (April)
Pages: 295-321

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Handle: RePEc:ecj:econjl:v:111:y:2001:i:470:p:295-321

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  1. Wealth, Health, and Trust
    by Niklas Blanchard in Modeled Behavior on 2010-06-06 16:09:06
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