IDEAS home Printed from https://ideas.repec.org/a/spr/sochwe/v62y2024i1d10.1007_s00355-023-01480-4.html
   My bibliography  Save this article

Escape poverty trap with trust? An experimental study

Author

Listed:
  • Kenneth S. Chan

    (McMaster University
    City University of Hong Kong)

  • Vivian Lei

    (University of Wisconsin-Milwaukee)

  • Filip Vesely

    (University of Wisconsin-Milwaukee)

Abstract

In this study, we introduce an experimental approach to study the causal impact of trust on economic performance. We ask if trust can serve as a coordination device to help poor economies escape a poverty trap and, if so, whether such an impact is universal regardless of their initial levels of development. We follow Lei and Noussair (2002, 2007) and design a decentralized market economy that has the structure of an optimal growth model where output is allocated between consumption and saving over a sequence of periods. As in Lei and Noussair (2007), a threshold externality is introduced to generate two equilibria where the Pareto-inferior equilibrium is considered as a poverty trap. We find that trust matters in that it is more likely for high-trust economies, generated with an endogenous matching procedure, to escape the poverty trap. But we also find that the likelihood to escape depends partially on the initial endowment condition. Trust has a much weaker impact on the economies whose initial capital and output are below the Pareto-inferior equilibrium, suggesting that formal institutions and/or policy measures may be needed to engineer a “big push” for these least developed economies.

Suggested Citation

  • Kenneth S. Chan & Vivian Lei & Filip Vesely, 2024. "Escape poverty trap with trust? An experimental study," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 62(1), pages 37-66, February.
  • Handle: RePEc:spr:sochwe:v:62:y:2024:i:1:d:10.1007_s00355-023-01480-4
    DOI: 10.1007/s00355-023-01480-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00355-023-01480-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s00355-023-01480-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:spo:wpecon:info:hdl:2441/18morovaof8fdbvqtbkas8cvhm is not listed on IDEAS
    2. John F. Helliwell, 1996. "Economic Growth and Social Capital in Asia," NBER Working Papers 5470, National Bureau of Economic Research, Inc.
    3. Cason, Timothy N. & Savikhin, Anya C. & Sheremeta, Roman M., 2012. "Behavioral spillovers in coordination games," European Economic Review, Elsevier, vol. 56(2), pages 233-245.
    4. Bart Nooteboom, 2007. "Social capital, institutions and trust," Review of Social Economy, Taylor & Francis Journals, vol. 65(1), pages 29-53.
    5. Yann Algan & Pierre Cahuc, 2010. "Inherited Trust and Growth," American Economic Review, American Economic Association, vol. 100(5), pages 2060-2092, December.
    6. Vivian Lei & Charles N. Noussair, 2007. "Equilibrium Selection in an Experimental Macroeconomy," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 448-482, October.
    7. Maxim Ananiev & Sergei Guriev, 2014. "The Effect of Income on Trust: the Evidence from 2009 Crisis in Russia," SciencePo Working papers Main hal-03429914, HAL.
    8. Holger Herz & Dmitry Taubinsky, 2018. "What Makes a Price Fair? An Experimental Study of Transaction Experience and Endogenous Fairness Views," Journal of the European Economic Association, European Economic Association, vol. 16(2), pages 316-352.
    9. Anya C. Savikhin & Roman M. Sheremeta, 2013. "Simultaneous Decision-Making In Competitive And Cooperative Environments," Economic Inquiry, Western Economic Association International, vol. 51(2), pages 1311-1323, April.
    10. Paul F. Whiteley, 2000. "Economic Growth and Social Capital," Political Studies, Political Studies Association, vol. 48(3), pages 443-466, June.
    11. Sjoerd Beugelsdijk, 2006. "A note on the theory and measurement of trust in explaining differences in economic growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 30(3), pages 371-387, May.
    12. Beugelsdijk, Sjoerd & van Schaik, Ton, 2005. "Social capital and growth in European regions: an empirical test," European Journal of Political Economy, Elsevier, vol. 21(2), pages 301-324, June.
    13. Peiró-Palomino, Jesús & Tortosa-Ausina, Emili, 2013. "Can trust effects on development be generalized? A response by quantile," European Journal of Political Economy, Elsevier, vol. 32(C), pages 377-390.
    14. C. Mónica Capra & Tomomi Tanaka & Colin F. Camerer & Lauren Feiler & Veronica Sovero & Charles N. Noussair, 2009. "The Impact of Simple Institutions in Experimental Economies with Poverty Traps," Economic Journal, Royal Economic Society, vol. 119(539), pages 977-1009, July.
    15. Banerjee, Ritwik, 2016. "Corruption, norm violation and decay in social capital," Journal of Public Economics, Elsevier, vol. 137(C), pages 14-27.
    16. Bednar, Jenna & Chen, Yan & Liu, Tracy Xiao & Page, Scott, 2012. "Behavioral spillovers and cognitive load in multiple games: An experimental study," Games and Economic Behavior, Elsevier, vol. 74(1), pages 12-31.
    17. repec:bla:ecinqu:v:51:y:2013:i:3:p:1715-1730 is not listed on IDEAS
    18. repec:hal:spmain:info:hdl:2441/18morovaof8fdbvqtbkas8cvhm is not listed on IDEAS
    19. repec:hal:spmain:info:hdl:2441/432sbils8u9t7qa99cii5psht1 is not listed on IDEAS
    20. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    21. repec:hal:wpspec:info:hdl:2441/18morovaof8fdbvqtbkas8cvhm is not listed on IDEAS
    22. Niclas Berggren & Mikael Elinder & Henrik Jordahl, 2008. "Trust and growth: a shaky relationship," Empirical Economics, Springer, vol. 35(2), pages 251-274, September.
    23. repec:spo:wpmain:info:hdl:2441/18morovaof8fdbvqtbkas8cvhm is not listed on IDEAS
    24. Vivian Lei & Charles N. Noussair, 2002. "An Experimental Test of an Optimal Growth Model," American Economic Review, American Economic Association, vol. 92(3), pages 549-570, June.
    25. Talbot Page & Louis Putterman & Bulent Unel, 2005. "Voluntary Association in Public Goods Experiments: Reciprocity, Mimicry and Efficiency," Economic Journal, Royal Economic Society, vol. 115(506), pages 1032-1053, October.
    26. repec:spo:wpmain:info:hdl:2441/432sbils8u9t7qa99cii5psht1 is not listed on IDEAS
    27. Vivian Lei & Charles N. Noussair, 2007. "Equilibrium Selection in an Experimental Macroeconomy," Southern Economic Journal, Southern Economic Association, vol. 74(2), pages 448-482, October.
    28. Felix Roth, 2022. "Does Too Much Trust Hamper Economic Growth?," Contributions to Economics, in: Intangible Capital and Growth, chapter 0, pages 141-165, Springer.
    29. Vivian Lei & Charles N. Noussair, 2007. "Equilibrium Selection in an Experimental Macroeconomy," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 448-482, October.
    30. Steffen Keck & Natalia Karelaia, 2012. "Does competition foster trust? The role of tournament incentives," Experimental Economics, Springer;Economic Science Association, vol. 15(1), pages 204-228, March.
    31. Tim Reeskens & Marc Hooghe, 2008. "Cross-cultural measurement equivalence of generalized trust. Evidence from the European Social Survey (2002 and 2004)," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 85(3), pages 515-532, February.
    32. Dearmon, Jacob & Grier, Kevin, 2009. "Trust and development," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 210-220, August.
    33. Sjoerd Beugelsdijk & Henri L.F. de Groot & Anton B.T.M. van Schaik, 2004. "Trust and economic growth: a robustness analysis," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 118-134, January.
    34. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wahl, Fabian, 2012. "Why it matters what people think: Beliefs, legal origins and the deep roots of trust," FZID Discussion Papers 52-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    2. Horváth, Roman, 2013. "Does trust promote growth?," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 777-788.
    3. Forte, Anabel & Peiró-Palomino, Jesús & Tortosa-Ausina, Emili, 2015. "Does social capital matter for European regional growth?," European Economic Review, Elsevier, vol. 77(C), pages 47-64.
    4. Judit Kapas, 2017. "How Cultural Values Affect Economic Growth: A Critical Assessment Of The Literature," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 26(1), pages 265-285, june.
    5. Peiró-Palomino, Jesús & Tortosa-Ausina, Emili, 2013. "Can trust effects on development be generalized? A response by quantile," European Journal of Political Economy, Elsevier, vol. 32(C), pages 377-390.
    6. Shu-Heng Chen & Bin-Tzong Chie & Tong Zhang, 2015. "Network-Based Trust Games: An Agent-Based Model," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 18(3), pages 1-5.
    7. Simplice Asongu & Oasis Kodila-tedika, 2017. "Trust and Growth Revisited," Economics Bulletin, AccessEcon, vol. 37(4), pages 2951-2961.
    8. Asongu, Simplice A. & Kodila-Tedika, Oasis, 2013. "Trust and Prosperity: A Conditional Relationship," MPRA Paper 46865, University Library of Munich, Germany, revised 15 Jun 2013.
    9. Jesús Peiró-Palomino, 2016. "Social Capital and Economic Growth in Europe: Nonlinear Trends and Heterogeneous Regional Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(5), pages 717-751, October.
    10. Rania S. Miniesy & Mariam AbdelKarim, 2021. "Generalized Trust and Economic Growth: The Nexus in MENA Countries," Economies, MDPI, vol. 9(1), pages 1-22, March.
    11. Christian Bjørnskov & Pierre-Guillaume Méon, 2015. "The productivity of trust," Post-Print CEB, ULB -- Universite Libre de Bruxelles, June.
    12. Judit Kapás, 2019. "The interaction of individual values and sticky formal institutions in economic development," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 16(1), pages 41-67, June.
    13. Ferruccio Ponzano & Roberto Ricciuti, 2012. "An Experimental AK Model of Growth," CESifo Working Paper Series 3744, CESifo.
    14. Xindong Xue & W. Robert Reed & Robbie C.M. van Aert, 2022. "Social Capital and Economic Growth: A Meta-Analysis," Working Papers in Economics 22/20, University of Canterbury, Department of Economics and Finance.
    15. Kostakis, Ioannis & Lolos, Sarantis & Doulgeraki, Charikleia, 2020. "Cultural Heritage led Growth: Regional evidence from Greece (1998-2016)," MPRA Paper 98443, University Library of Munich, Germany.
    16. Tracy Xiao Liu & Jenna Bednar & Yan Chen & Scott Page, 2019. "Directional behavioral spillover and cognitive load effects in multiple repeated games," Experimental Economics, Springer;Economic Science Association, vol. 22(3), pages 705-734, September.
    17. Urszula Markowska-Przybyła & David M. Ramsey, 2018. "Social Capital and Long-Term Regional Development within Poland in the Light of Experimental Economics and Data from a Questionnaire," Sustainability, MDPI, vol. 10(9), pages 1-26, August.
    18. Florian Heine & Martin Sefton, 2018. "To Tender or Not to Tender? Deliberate and Exogenous Sunk Costs in a Public Good Game," Games, MDPI, vol. 9(3), pages 1-28, June.
    19. Hall, Stephen G & Ahmad, Mahyudin, 2013. "Can Trust Explain Social Capital Effect on Property Rights and Growth?," MPRA Paper 48440, University Library of Munich, Germany.
    20. Ramalingam, Abhijit & Stoddard, Brock V. & Walker, James M., 2019. "The market for talent: Competition for resources and self-governance in teams," Games and Economic Behavior, Elsevier, vol. 114(C), pages 268-284.

    More about this item

    Keywords

    Trust; Growth; Poverty trap; Experiment;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sochwe:v:62:y:2024:i:1:d:10.1007_s00355-023-01480-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.