Notes on the Relationship Between Trust, Institutions and Social Capital

This paper examines the complementary relationship between institutions and social capital in influencing economic efficiency. The paper adopts an approach similar to Coleman (1990), but discerns between three different meanings given to the concept "institutions" in economic literature: rules of the game, rules and players, equilibrium in a repeated game. It emerges that the role of social capital in economic transactions is connected to the existence of "institutional voids", in the triple meaning of (i) contractual voids, (ii) deficit of intermediate institutions providing a link between supply and demand of local public goods, (iii) lack of self enforcing behavioural cooperative norms. Complementarity between institutions and social capital is not only in the sense that the effectiveness of institutions can be reinforced by social capital: another important dimension of this relationship consists on the opportunity the institutional context offers to social capital in operating in a efficient manner. Public policies, in fact, by modifying the institutional context through a system of rules and incentives, can create the conditions for social capital to have a positive influence on economic development. Appropriate incentives can "force" local actors to adopt behavioural strategies to overcome vested interests, and to privilege collective action, thereby changing the initial institutional context for the better.