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Trust and Trustworthiness in an Economy with Heterogeneous Individuals

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  • Peter Katuscak
  • Joel Slemrod

Abstract

We analyze the determinants of trust and trustworthiness in a matching equilibrium when agents have heterogeneous predispositions towards trusting and trustworthy behavior, there is transmission of information via both individual and collective reputations, and successful matches may persist. In new matches, more social trustworthiness breeds more individual trust. However, whether more social trust breeds more or less individual trustworthiness depends on the observability of individual histories of play. If it is low, more trust generally breeds less trustworthiness, while if it is high, more trust breeds more trustworthiness. We combine the links between social trust and trustworthiness to construct a general trust/trustworthiness equilibrium and discuss its properties.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp305.

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Date of creation: Sep 2006
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Handle: RePEc:cer:papers:wp305

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Keywords: Trust; trustworthiness; reputation.;

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  1. Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
  2. Parikshit Ghosh & Debraj Ray, 1995. "Cooperation in Community Interaction Without Information Flows," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 64, Boston University, Institute for Economic Development.
  3. Avinash Dixit, 2003. "On Modes of Economic Governance," Econometrica, Econometric Society, Econometric Society, vol. 71(2), pages 449-481, March.
  4. Alesina, Alberto F & La Ferrara, Eliana, 2000. "Who Trusts Others?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2646, C.E.P.R. Discussion Papers.
  5. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  6. Nava Ashraf & Iris Bohnet & Nikita Piankov, 2006. "Decomposing trust and trustworthiness," Experimental Economics, Springer, Springer, vol. 9(3), pages 193-208, September.
  7. Joel Slemrod & Peter Katuák, 2005. "Do Trust and Trustworthiness Pay Off?," Journal of Human Resources, University of Wisconsin Press, vol. 40(3).
  8. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1251-88, November.
  9. Rosenthal, R W, 1979. "Sequences of Games with Varying Opponents," Econometrica, Econometric Society, Econometric Society, vol. 47(6), pages 1353-66, November.
  10. Chen, Yongmin, 2000. "Promises, Trust, and Contracts," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 16(1), pages 209-32, April.
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