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Trust in Transition: Cross-country and Firm Evidence

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Author Info
Martin Raiser (World Bank)
Alan Rousso (EBRD)
Franklin Steves (EBRD)

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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 more important determinants of inter-firm trust than 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 inter-firm trust than firm-level effects.

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File URL: http://129.3.20.41/eps/othr/papers/0401/0401007.pdf
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Publisher Info
Paper provided by EconWPA in its series Others with number 0401007.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 22 pages
Date of creation: 23 Jan 2004
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Handle: RePEc:wpa:wuwpot:0401007

Note: Type of Document - pdf; prepared on Win2000; pages: 22; figures: 1
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Web page: http://129.3.20.41

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Related research
Keywords: transition; trust; prepayment; courts; business networks;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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References listed on IDEAS
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.:
  1. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January. [Downloadable!] (restricted)
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  2. 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.
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  3. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Contract Enforcement in Transition," CEPR Discussion Papers 2081, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Kornai, Janos, 1993. "The Evolution of Financial Discipline under the Postsocialist System," Kyklos, Blackwell Publishing, vol. 46(3), pages 315-36.
  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. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November. [Downloadable!] (restricted)
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  7. Blanchard, O & Kremer, M, 1996. "Disorganization," Working papers 96-30, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
(explanations, 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.)

  1. Berulava George & Lezhava David, 2007. "The impact of trust on the mode of transaction governance between manufacturer and distributor," EERC Working Paper Series 07-05e, EERC Research Network, Russia and CIS. [Downloadable!]
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