Gilad Aharonovitz Nathan Skuza Faysal Fahs () (School of Economic Sciences, Washington State University)
Abstract
Institutions are important for proper economic performance, but can be somewhat replaced by trust or other social norms. This study shows that institutions and trust can be replaced by integrity of the individual agents in the economy, regardless of any social arrangement. We construct a model of a transactions-based economy in which transactions are preceded by contracts, and show that any one of (1) institutions, (2) trust, or (3) integrity, can foster economic growth, while the absence of all three will lead to economic decay. The model also predicts that in the absence of institution and trust, dishonest agents may gain higher payoffs than honest agents. We construct data of economic performance of different social groups in Lebanon, measure integrity and other values of these groups, and support the latter conclusion with this data.
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Publisher Info
Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number
2009-06.
Find related papers by JEL classification: A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
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