Can Integrity Replace Institutions? Theory and Evidence

36 Pages Posted: 4 Aug 2009

See all articles by Gilad D. Aharonovitz

Gilad D. Aharonovitz

Washington State University - School of Economic Sciences

Nathan Skuza

affiliation not provided to SSRN

Faysal Fahs

affiliation not provided to SSRN

Date Written: July 2009

Abstract

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.

Keywords: economic development, institutions, integrity, Lebanon, social norms, trust

JEL Classification: A13, C73, E19, O43, Z10

Suggested Citation

Aharonovitz, Gilad D. and Skuza, Nathan and Fahs, Faysal, Can Integrity Replace Institutions? Theory and Evidence (July 2009). CESifo Working Paper Series No. 2730. Available at SSRN: https://ssrn.com/abstract=1443086

Gilad D. Aharonovitz (Contact Author)

Washington State University - School of Economic Sciences

Pullman, WA 99164-4741
United States

HOME PAGE: http://www.ses.wsu.edu/People/aharonovitz.htm

Nathan Skuza

affiliation not provided to SSRN

Faysal Fahs

affiliation not provided to SSRN

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