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Trust In Transition: Cross Country And Firm Evidence

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Author Info

  • Martin Raiser

    ()

  • Alan Rousso

    ()

  • Franklin Steves

    ()

Abstract

This paper uses data from a large survey of firms across 26 transition countries to examine the determinants of trust in the transition process. We first introduce a new measure of trust between firms: the level of prepayment demanded by suppliers from their customers in advance of delivery. Using this new measure, we confirm earlier findings that trust is higher where firms have confidence in third party enforcement through the legal system. However, the fairness and honesty of the courts are a more important determinant of interfirm trust than are the courts’ efficiency or ability to enforce decisions. We then examine the role of business networks in building trust and find that networks based around personal ties – family and friends – and business associations actively promote the development of trust, while business networks based on enterprise insiders and government agencies do not. Finally, we find that country-level effects are significantly more important determinants of interfirm trust than are firm-level effects.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-640.

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Length: 32 pages
Date of creation: 01 Jan 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-640

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Related research

Keywords: Trust; Prepayment; Courts; Business Networks;

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References

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  1. Kornai, Janos, 1993. "The Evolution of Financial Discipline under the Postsocialist System," Kyklos, Wiley Blackwell, vol. 46(3), pages 315-36.
  2. Blanchard, Olivier & Kremer, Michael, 1997. "Disorganization," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1091-1126, November.
  3. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
  4. Simon Johnson & John McMillan, 2002. "Courts and Relational Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 221-277, April.
  5. 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.
  6. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
  7. John McMillan & Christopher Woodruff, 1998. "Interfirm Relationships and Informal Credit in Vietnam," William Davidson Institute Working Papers Series 132, William Davidson Institute at the University of Michigan.
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Cited by:
  1. Polterovich, Victor & Tonis, Alexander, 2005. "Hiring Strategies and the Evolution of Honesty," MPRA Paper 20053, University Library of Munich, Germany.
  2. Prüfer, J., 2012. "Business Associations and Private Ordering," Discussion Paper 2012-011, Tilburg University, Tilburg Law and Economic Center.
  3. BARTOLINI Stefano & MIKUCKA Malgorzata & SARRACINO Francesco, 2012. "Money, Trust and Happiness in Transition Countries: Evidence from Time Series," CEPS/INSTEAD Working Paper Series 2012-04, CEPS/INSTEAD.
  4. Simona Mateut, . "Reverse trade credit - the use of prepayments by French firms," Discussion Papers 11/12, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  5. Berulava, George, 2013. "Do Trust-Based Relations Improve Firm’s Performance? Evidence from Transition Economies," MPRA Paper 48430, University Library of Munich, Germany.

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