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Formal Institutions and the Trust Formation Process: A Psychological Approach to Explain the Relationship between Institutions and Interpersonal Trust

Author

Listed:
  • Tamilina, Larysa
  • Tamilina, Natalya

Abstract

While formal institutions are recognized as having an effect on trust formation, no theoretical or empirical models exist to formalize this relationship. This study introduces a new conceptual framework to explain trust building by individuals and the role that formal rules and laws may play in this process. Drawing on a social-cognitive theory of psychology, we present trust as composed of internal, interpersonal, and external components with the latter encompassing formal institutions. We further demonstrate that there are three mechanisms – sanction, legitimacy, and autonomy – through which formal institutions may affect trust levels either directly or indirectly. These propositions are tested empirically based on the European Social Survey data (2004) by using a variety of statistical techniques. Our empirical analysis demonstrates evidence of heterogeneity in institutional effects on trust, suggesting that the autonomy dimension of the institutional framework is particularly important for trust formation processes.

Suggested Citation

  • Tamilina, Larysa & Tamilina, Natalya, 2013. "Formal Institutions and the Trust Formation Process: A Psychological Approach to Explain the Relationship between Institutions and Interpersonal Trust," MPRA Paper 49812, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49812
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    File URL: https://mpra.ub.uni-muenchen.de/49812/1/MPRA_paper_49812.pdf
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    References listed on IDEAS

    as
    1. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    2. Francis Fukuyama, 2000. "Social Capital and Civil Society," IMF Working Papers 00/74, International Monetary Fund.
    3. Fidrmuc, Jan, 2003. "Economic reform, democracy and growth during post-communist transition," European Journal of Political Economy, Elsevier, vol. 19(3), pages 583-604, September.
    4. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
    5. Jessica Henson Decker & Jamus Jerome Lim, 2008. "What fundamentally drives growth? Revisiting the institutions and economic performance debate," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(5), pages 698-725.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    interpersonal trust; formal institutions; social-cognitive psychology; heterogeneity; trust formation process;

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • Z10 - Other Special Topics - - Cultural Economics - - - General
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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