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Building Social Trust: A Human Capital Approach

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  • Fali Huang

    ()
    (School of Economics, Singapore Management University)

Abstract

Much evidence suggests individuals differ in their predisposition to cooperate, which is essentially a component of human capital. This paper examines the role of individual cooperative tendencies and their interactions with institutions in generating social trust; it also endogenizes cooperative tendencies using a human capital investment model. Multiple equilibria and ineffciencies exist due to positive externalities. An innovative fi?nding is that, when institutions are more e¤ective in punishing defecting behaviors, more people invest in cooperative tendencies and hence the endogenous social trust is higher, though the equilibrium cooperative tendencies are lower. This paper provides a plausible explanation for many empirical and experimental results

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Bibliographic Info

Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 08-2007.

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Length: 23 pages
Date of creation: Sep 2007
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:08-2007

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  1. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  2. Fali Huang, 2007. "To Trust or to Monitor: A Dynamic Analysis," Working Papers 11-2007, Singapore Management University, School of Economics.
  3. Ernst Fehr & Simon Gaechter, . "Fairness and Retaliation: The Economics of Reciprocitys," IEW - Working Papers 040, Institute for Empirical Research in Economics - University of Zurich.
  4. James J. Heckman, 1999. "Policies to Foster Human Capital," NBER Working Papers 7288, National Bureau of Economic Research, Inc.
  5. Frank, Robert H, 1987. "If Homo Economicus Could Choose His Own Utility Function, Would He Want One with a Conscience?," American Economic Review, American Economic Association, vol. 77(4), pages 593-604, September.
  6. Werner Güth & Hartmut Kliemt & Bezalel Peleg, 2000. "Co-evolution of Preferences and Information in Simple Games of Trust," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 83-110, 02.
  7. Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 857-882, December.
  8. Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers 052, Institute for Empirical Research in Economics - University of Zurich.
  9. Brennan, G. & Güth, W. & Kliemt, H., 1997. "Trust in the Shadow of the Courts," Discussion Paper 1997-89, Tilburg University, Center for Economic Research.
  10. Weimann, Joachim, 1994. "Individual behaviour in a free riding experiment," Journal of Public Economics, Elsevier, vol. 54(2), pages 185-200, June.
  11. Harvey James, 2002. "The Trust Paradox: A Survey of Economic Inquiries Into the Nature of Trust and Trustworthiness," Microeconomics 0202001, EconWPA.
  12. Oren Bar-Gill & Chaim Fershtman, 2005. "Public Policy with Endogenous Preferences," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 841-857, December.
  13. Rotemberg, Julio J, 1994. "Human Relations in the Workplace," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 684-717, August.
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