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Trust, Social Capital and Economic Development

Patrick Francois

University of British Columbia (UBC) - Department of Economics

Jan Zabojnik

Queen's University - Department of Economics


CentER Discussion Paper No. 2003-116

Many argue that elements of a society's norms, culture or social capital are central to understanding its development. However, these notions have been difficult to capture in economic models. Here, we argue that trustworthiness is the economically relevant component of a society's culture and, hence, comprises its social capital. Individuals are trustworthy when they perform actions they have promised, even if these do not maximize their payoffs. The usual focus on incentive structures in motivating behaviour plays no role here. Instead, we emphasize more deep-seated modes of behaviour and consider that trustworthy agents are socialized to act as they do. To model this socialization, we borrow from a relatively new process of preference evolution pioneered by Bisin and Verdier (2001). The model developed endogenously accounts for social capital and explores its role in the process of economic development. It captures in a simple, formal way the interaction between social capital and the economy's productive process. The results obtained caution against rapid reform, provide an explanation for why late developing countries cannot easily transplant the modes of production that have proved useful in the West, and suggest an explanation for the pattern of reform experiences in ex-communist countries.

Number of Pages in PDF File: 42

Keywords: Social capital, evolution, technological change

JEL Classification: O1, O3, O4, Z1

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Date posted: June 17, 2004  

Suggested Citation

Francois, Patrick and Zabojnik, Jan, Trust, Social Capital and Economic Development (2003). CentER Discussion Paper No. 2003-116. Available at SSRN: http://ssrn.com/abstract=556947 or http://dx.doi.org/10.2139/ssrn.556947

Contact Information

Patrick Francois (Contact Author)
University of British Columbia (UBC) - Department of Economics ( email )
997-1873 East Mall
Vancouver, BC V6T 1Z1
Jan Zabojnik
Queen's University - Department of Economics ( email )
94 University Avenue
Kingston, Ontario K7L 3N6
613-533-2275 (Phone)
613-533-6668 (Fax)
HOME PAGE: http://qed.econ.queensu.ca/faculty/zabojnik/Page/
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