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Public trust, the law, and financial investment

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Author Info

  • Carlin, Bruce Ian
  • Dorobantu, Florin
  • Viswanathan, S.

Abstract

How does trust evolve in markets? What is the optimal level of regulation and how does this affect trust formation and economic growth? In a theoretical model, we analyze these questions, given the value of social capital and the potential for growth in the market. When social capital is valuable, regulation and trustfulness are substitutes. In this case, regulation may cause lower aggregate investment and decreased economic growth. When the social capital is less valuable, regulation and trustfulness may be complements. In the paper, we analyze the optimal level of regulation and highlight the novel predictions of the model.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 92 (2009)
Issue (Month): 3 (June)
Pages: 321-341

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Handle: RePEc:eee:jfinec:v:92:y:2009:i:3:p:321-341

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Trust Regulation Economic growth;

References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Citations

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Cited by:
  1. Algan, Yann & Cahuc, Pierre, 2013. "Trust, Growth and Well-being: New Evidence and Policy Implications," IZA Discussion Papers 7464, Institute for the Study of Labor (IZA).
  2. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2010. "Are innovating firms victims or perpetrators ? tax evasion, bribe payments, and the role of external finance in developing countries," Policy Research Working Paper Series 5389, The World Bank.
  3. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2009. "Regulation and Distrust," NBER Working Papers 14648, National Bureau of Economic Research, Inc.
  4. Pitlik, Hans & Kouba, Ludek, 2014. "Does social distrust always lead to a stronger support for government intervention?," Ratio Working Papers 227, The Ratio Institute.
  5. Wahl, Fabian, 2012. "Why it matters what people think: Beliefs, legal origins and the deep roots of trust," FZID Discussion Papers 52-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  6. Bruce Ian Carlin & Gustavo Manso, 2009. "Obfuscation, Learning, and the Evolution of Investor Sophistication," NBER Working Papers 14954, National Bureau of Economic Research, Inc.
  7. Luigi Guiso, 2010. "A trust-driven financial crisis. Implications for the future of financial markets," Economics Working Papers ECO2010/07, European University Institute.
  8. Roman Horváth, 2012. "Does Trust Promote Growth?," Working Papers 319, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  9. Deng, Wen-Shuenn & Lin, Yi-Chen & Gong, Jinguo, 2012. "A smooth coefficient quantile regression approach to the social capital–economic growth nexus," Economic Modelling, Elsevier, vol. 29(2), pages 185-197.
  10. Bruce I. Carlin & Simon Gervais, 2009. "Legal Protection in Retail Financial Markets," NBER Working Papers 14972, National Bureau of Economic Research, Inc.
  11. Francois, Patrick & van Ypersele, Tanguy, 2009. "Doux Commerces: Does Market Competition Cause Trust?," CEPR Discussion Papers 7368, C.E.P.R. Discussion Papers.
  12. Kiridaran Kanagaretnam & Stuart Mestelman & Khalid Nainar & Mohamed Shehata, 2009. "The Impact of Empowering Investors on Trust and Trustworthiness," Department of Economics Working Papers 2009-16, McMaster University.
  13. repec:onb:oenbwp:y::i:158:b:1 is not listed on IDEAS

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