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Can Integrity Replace Institutions? Theory and Evidence

Author

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  • Gilad D. Aharonovitz
  • Nathan Skuza
  • Faysal Fahs

Abstract

Institutions are important for proper economic performance, but are replaceable by trust or other social norms. We show that when proper institutions and trust are missing, integrity of the individuals can replace them. We construct a model of a transactions-based economy with contracts preceding the transactions, and show that any one of (1) institutions, (2) trust, or (3) integrity, foster economic growth. We construct data of economic performance of social groups in Lebanon, measure integrity and other values of these groups, and use this data and data from Kenya to support one of the model’s predictions. Policy implications are discussed.

Suggested Citation

  • Gilad D. Aharonovitz & Nathan Skuza & Faysal Fahs, 2009. "Can Integrity Replace Institutions? Theory and Evidence," CESifo Working Paper Series 2730, CESifo.
    • Handle: RePEc:ces:ceswps:_2730
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    2. Yu‐Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(3), pages 290-317, July.

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    More about this item

    Keywords

    economic development; institutions; integrity; Lebanon; social norms; trust;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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