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The Long Shadow of Income on Trustworthiness

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  • Ermisch, John

    ()
    (University of Oxford)

  • Gambetta, Diego

    ()
    (University of Oxford)

Abstract

We employ a behavioural measure of trustworthiness obtained from an experiment carried out with a sample of the general British population whose individuals were extensively interviewed on earlier occasions. These previous interviews allow us to have very good income measures, and in particular to construct a measure of relative income that uses past income as a reference point. Our basic finding is that given past income, higher current income increases trustworthiness and, given current income, higher past income reduces trustworthiness. Past income determines the level of financial aspirations and whether or not these are fulfilled by the level of current income affects trustworthiness. But past income has a disproportionately large effect on trustworthiness compared to that predicted by the relative income theory, and this leads us to suspect that past income may also capture heterogeneity in relevant subjects’ dispositions, with more opportunistic subjects being less trustworthy and having higher average incomes. We suggest and estimate a two-tier model in which relative income has the same positive effect within each past income class, but people in higher past income classes have a lower fundamental levels of trustworthiness.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5585.

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Length: 36 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5585

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Keywords: trustworthiness; relative income;

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  1. Charles Bellemare & Sabine Kroger, 2005. "On Representative Social Capital," Cahiers de recherche 0504, CIRPEE.
  2. Jäckle, Annette & Sala, Emanuela & Jenkins, Stephen P. & Lynn, Peter, 2004. "Validation of survey data on income and employment: the ISMIE experience," ISER Working Paper Series 2004-14, Institute for Social and Economic Research.
  3. Ermisch, John & Gambetta, Diego & Laurie, Heather & Siedler, Thomas & Uhrig, S.C. Noah, 2008. "Measuring people's trust," ISER Working Paper Series 2007-32, Institute for Social and Economic Research.
  4. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  5. McCabe, Kevin A. & Rigdon, Mary L. & Smith, Vernon L., 2003. "Positive reciprocity and intentions in trust games," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 267-275, October.
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