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Generalized trust and wealth

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  • Bac, Mehmet

Abstract

The relation between economic inequality and trust is studied in a model where the ability to elicit trustworthiness from unrelated people depends on own wealth as well as the distribution and mean of population wealth. In equilibrium, the rich trust but betray while the poor do not trust but are trustworthy. Homogenizing wealth around its mean leads to a zero-trust outcome if mean wealth is sufficiently low, to full trust if mean wealth is large. More effective enforcement technologies increase, more effective counter-enforcement technologies decrease trust. Economic inequality reinforces itself through the trust and betray incentives it induces, suggesting a beneficial role for redistributive policies.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 29 (2009)
Issue (Month): 1 (March)
Pages: 46-56

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Handle: RePEc:eee:irlaec:v:29:y:2009:i:1:p:46-56

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Web page: http://www.elsevier.com/locate/irle

Related research

Keywords: Trust Incomplete information Inequality Wealth Enforcement;

References

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  1. Huang, Peter H & Wu, Ho-Mou, 1994. "More Order without More Law: A Theory of Social Norms and Organizational Cultures," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 390-406, October.
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  3. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May.
  4. Edna Ullmann-Margalit, 2002. "Trust Out of Distrust," Discussion Paper Series dp289, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  5. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  6. Alesina, Alberto F & La Ferrara, Eliana, 2000. "Who Trusts Others?," CEPR Discussion Papers 2646, C.E.P.R. Discussion Papers.
  7. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2007. "Cultural Biases in Economic Exchange?," Economics Working Papers ECO2007/42, European University Institute.
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