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Trust, Social Capital, and Economic Development

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  • Patrick Francois

    (University of British Columbia and Center, Tilburg University,)

  • Jan Zabojnik

    (University of Southern California,)

Abstract

Many argue that elements of a society's norms, culture, or social capital are central to under-standing its development. However, these notions have been difficult to capture in economic models. Here we explore a possible role for "trustworthiness" as corresponding to social capital. Individuals are trustworthy when they perform in accordance with promises, even if this does not maximise their payoffs. The usual focus on incentive structures in motivating behaviour plays no role here. Instead, we emphasise more deep-seated modes of behaviour and consider trustworthy agents being socialised to act as they do. To model this socialisation, we borrow from a process of preference evolution pioneered by Bisin and Verdier (2001). The model developed endogenously accounts for social capital and explores its role in the process of eco-nomic development. It captures in a simple, formal way the interaction between social capital and the economy's productive processes. The results obtained caution against rapid reform and provide an explanation for why late-developing countries may not easily be able to transplant the modes of production that have proved useful in the West. (JEL: O1, O3, O4, Z1) Copyright (c) 2005 by the European Economic Association.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 3 (2005)
Issue (Month): 1 (03)
Pages: 51-94

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Handle: RePEc:tpr:jeurec:v:3:y:2005:i:1:p:51-94

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  1. HEIFETZ, Aviad & SHANNON, Chris & SPIEGEL, Yossi, 2003. "What to maximize if you must," CORE Discussion Papers 2003047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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