Trust and the Distribution of Caution
AbstractTrust is often considered a determinant of economic performance. The exogeneity of trust, however, is questionable. We develop a model with heterogeneous agents to determine aggregate trustworthiness, trust, and output. People differ according to their risk aversion (caution). The distribution of risk aversion across individuals -- along with the threat of punishment -- is critical in the process by which trust is formed. The mean and variance of the distribution of caution have direct and indirect effects on trust. For the mean, the direct effect of caution is intuitive: societies with more cautious populations would have less trust. The indirect effect, however works through the perception of trustworthiness and leads to more trust. The net effect is, paradoxically, positive in homogenous societies. In heterogeneous societies, the reverse is true. Trust and output are endogenous, and not monotonically related across countries with different moments of the distribution of caution.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 18112.
Date of creation: Aug 2009
Date of revision:
trust; trustworthiness; risk aversion; caution; output;
Find related papers by JEL classification:
- Z1 - Other Special Topics - - Cultural Economics
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-31 (All new papers)
- NEP-CBE-2009-10-31 (Cognitive & Behavioural Economics)
- NEP-EVO-2009-10-31 (Evolutionary Economics)
- NEP-SOC-2009-10-31 (Social Norms & Social Capital)
- NEP-UPT-2009-10-31 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ernst Fehr, 2009.
"On The Economics and Biology of Trust,"
Journal of the European Economic Association,
MIT Press, vol. 7(2-3), pages 235-266, 04-05.
- Ernst Fehr, 2008. "On the Economics and Biology of Trust," SOEPpapers on Multidisciplinary Panel Data Research 154, DIW Berlin, The German Socio-Economic Panel (SOEP).
- Fehr, Ernst, 2008. "On the Economics and Biology of Trust," IZA Discussion Papers 3895, Institute for the Study of Labor (IZA).
- Ernst Fehr, 2009. "On the economics and biology of trust," IEW - Working Papers 399, Institute for Empirical Research in Economics - University of Zurich.
- Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000.
The Quarterly Journal of Economics,
MIT Press, vol. 115(3), pages 811-846, August.
- Drago, Francesco & Galbiati, Roberto & Vertova, Pietro, 2007.
"The Deterrent Effects of Prison: Evidence from a Natural Experiment,"
CEPR Discussion Papers
6401, C.E.P.R. Discussion Papers.
- Francesco Drago & Roberto Galbiati & Pietro Vertova, 2009. "The Deterrent Effects of Prison: Evidence from a Natural Experiment," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 257-280, 04.
- Drago, Francesco & Galbiati, Roberto & Vertova, Pietro, 2007. "The Deterrent Effects of Prison: Evidence from a Natural Experiment," IZA Discussion Papers 2912, Institute for the Study of Labor (IZA).
- Laura Schechter, 2005.
"Traditional trust measurement and the risk confound: An experiment in rural paraguay,"
Artefactual Field Experiments
00106, The Field Experiments Website.
- Schechter, Laura, 2007. "Traditional trust measurement and the risk confound: An experiment in rural Paraguay," Journal of Economic Behavior & Organization, Elsevier, vol. 62(2), pages 272-292, February.
- Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutstr�m, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, vol. 95(3), pages 897-901, June.
- Dean S. Karlan, 2005.
"Using Experimental Economics to Measure Social Capital And Predict Financial Decisions,"
909, Economic Growth Center, Yale University.
- Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1688-1699, December.
- Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," Working Papers 182, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- Dean Karlan, 2004. "Using experimental economics to measure social capital and predict financial decisions," Artefactual Field Experiments 00074, The Field Experiments Website.
- Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
- Eckel, Catherine C. & Wilson, Rick K., 2004. "Is trust a risky decision?," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 447-465, December.
- repec:pri:rpdevs:182 is not listed on IDEAS
- La Porta, Rafael, et al, 1997.
"Trust in Large Organizations,"
American Economic Review,
American Economic Association, vol. 87(2), pages 333-38, May.
- Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2007. "Estimating Risk Attitudes in Denmark: A Field Experiment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 341-368, 06.
- Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
- Breuer, Janice Boucher & McDermott, John, 2009. "Trustworthiness and economic performance," MPRA Paper 16777, University Library of Munich, Germany.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Nava Ashraf & Iris Bohnet & Nikita Piankov, 2006. "Decomposing trust and trustworthiness," Experimental Economics, Springer, vol. 9(3), pages 193-208, September.
- Breuer, Janice Boucher & McDermott, John, 2012. "Culture, caution, and trust," Journal of Development Economics, Elsevier, vol. 97(1), pages 15-23.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.