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Culture, caution, and trust

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  • Breuer, Janice Boucher
  • McDermott, John

Abstract

Trust is an important determinant of economic development. Understanding its origins is therefore critical. We develop a principal-agent model with heterogeneous players to determine the aggregate amount of trustworthiness and trust in a society. People are distributed according to their preference toward caution, which we model as loss aversion. The first two moments of the distribution across principals and agents—along with institutional quality—are critical to the process by which trustworthiness and trust are formed. A direct effect suggests that more caution leads to less societal trust. An indirect effect of greater caution, working through trustworthiness, leads to more trust. Paradoxically, the net effect is almost always positive. The results are similar when we use expected utility theory. Different distributional assumptions can influence the results.

Suggested Citation

  • Breuer, Janice Boucher & McDermott, John, 2012. "Culture, caution, and trust," Journal of Development Economics, Elsevier, vol. 97(1), pages 15-23.
  • Handle: RePEc:eee:deveco:v:97:y:2012:i:1:p:15-23
    DOI: 10.1016/j.jdeveco.2011.02.001
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    Citations

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    Cited by:

    1. Klasing, Mariko J., 2014. "Cultural change, risk-taking behavior and implications for economic development," Journal of Development Economics, Elsevier, vol. 110(C), pages 158-169.
    2. Boris Gershman, 2016. "Long-Run Development and the New Cultural Economics," Working Papers 2016-06, American University, Department of Economics.
    3. Xue, Minggao & Cheng, Wen, 2013. "National culture, market condition and market share of foreign bank," Economic Modelling, Elsevier, vol. 33(C), pages 991-997.
    4. Hassani Mahmooei, Behrooz & Parris, Brett, 2012. "Dynamics of effort allocation and evolution of trust: an agent-based model," MPRA Paper 44919, University Library of Munich, Germany.
    5. Christopher Bidner & Ken Jackson, 2011. "Trust and Vulnerability," Discussion Papers 2012-09, School of Economics, The University of New South Wales.
    6. Breuer, Janice Boucher & McDermott, John, 2013. "Respect, responsibility, and development," Journal of Development Economics, Elsevier, vol. 105(C), pages 36-47.

    More about this item

    Keywords

    Trust; Risk; Caution; Culture; Trustworthiness;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • Z1 - Other Special Topics - - Cultural Economics
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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