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Can Integrity Replace Institutions? Theory and Evidence

  • Gilad D. Aharonovitz
  • Nathan Skuza
  • Faysal Fahs
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    Institutions are important for proper economic performance, but are replaceable by trust or other social norms. We show that when proper institutions and trust are missing, integrity of the individuals can replace them. We construct a model of a transactions-based economy with contracts preceding the transactions, and show that any one of (1) institutions, (2) trust, or (3) integrity, foster economic growth. We construct data of economic performance of social groups in Lebanon, measure integrity and other values of these groups, and use this data and data from Kenya to support one of the model’s predictions. Policy implications are discussed.

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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2730.

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    Date of creation: 2009
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    Handle: RePEc:ces:ceswps:_2730
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