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Do Trust and Trustworthiness Pay Off?

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  • Joel Slemrod
  • Peter Katuscak

Abstract

Are individuals who trust others better off than those who do not? Do trustworthy people prosper more than untrustworthy ones? We first pose these questions in a search model where individuals face repeated choices between trusting (initiating an investment transaction) and not trusting, and between being trustworthy (not stealing the investment) and cheating. We then derive predictions for the relationship between observed individual behavior, aggregate attitudes, and individual prosperity. Finally, we evaluate these predictions empirically using household-level data for eighteen (mostly developed) countries from the World Values Survey. We find that, on average, a trusting attitude has a positive impact on income, while trustworthiness has a negative impact on income. In addition, we find evidence of complementarity between these two attitudes and the aggregate levels of the complementary attitudes. Most strikingly, the payoff to being trustworthy depends positively on the aggregate amount of trust in a given country.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9200.

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Date of creation: Sep 2002
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Publication status: published as Slemrod, Joel and Peter Katuscak. "Do Trust and Trustworthiness Pay Off?," Journal of Human Resources, 2005, v40(3,Summer), 621-646.
Handle: RePEc:nbr:nberwo:9200

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  1. Avinash Dixit, 2001. "On Modes of Economic Governance," CESifo Working Paper Series 589, CESifo Group Munich.
  2. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-79, April.
  3. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
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  5. Joshua Angrist & Alan Krueger, 1998. "Empirical Strategies in Labor Economics," Working papers 98-7, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
  7. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  8. Alberto Alesina & Eliana La Ferrara, 2000. "The Determinants of Trust," NBER Working Papers 7621, National Bureau of Economic Research, Inc.
  9. Danielson, Anders & Holm, Hakan J, 2002. "Trust in the Tropics? Experimental Evidence from Tanzania," Working Papers 2002:12, Lund University, Department of Economics.
  10. Isacsson, Gunnar, 1999. "Estimates of the return to schooling in Sweden from a large sample of twins," Labour Economics, Elsevier, vol. 6(4), pages 471-489, November.
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  12. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 811-846, August.
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Cited by:
  1. Heineck, Guido & Süssmuth, Bernd, 2012. "A different look at Lenin's legacy: Social capital and risk taking in the two Germanies," Working Papers 118, University of Leipzig, Faculty of Economics and Management Science.
  2. Rainer, Helmut & Siedler, Thomas, 2009. "Does democracy foster trust?," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 251-269, June.
  3. Peter Katuscak & Joel Slemrod, 2006. "Trust and Trustworthiness in an Economy with Heterogeneous Individuals," CERGE-EI Working Papers wp305, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Johansson-Stenman, Olof, 2006. "Who Are the Trustworthy, We Think?," Working Papers in Economics 222, University of Gothenburg, Department of Economics.
  5. Hong, Kessely & Bohnet, Iris, 2007. "Status and distrust: The relevance of inequality and betrayal aversion," Journal of Economic Psychology, Elsevier, vol. 28(2), pages 197-213, April.
  6. Abigail Barr & Pieter Serneels, 2004. "Wages and Reciprocity in the Workplace," Economics Series Working Papers WPS/2004-18, University of Oxford, Department of Economics.
  7. Ashraf, Nava & Bohnet, Iris & Piankov, Nikita, 2003. "Is Trust a Bad Investment?," Working Paper Series rwp03-047, Harvard University, John F. Kennedy School of Government.
  8. Helmut Rainer & Thomas Siedler, 2006. "Does Democracy Foster Trust? Evidence from the German Reunification," Economics Discussion Papers 613, University of Essex, Department of Economics.
  9. Breuer, Janice Boucher & McDermott, John, 2009. "Trustworthiness and economic performance," MPRA Paper 16777, University Library of Munich, Germany.

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