Doux Commerces: Does Market Competition Cause Trust?

66 Pages Posted: 26 Aug 2009

See all articles by Patrick Francois

Patrick Francois

University of British Columbia (UBC) - Department of Economics

Tanguy Van Ypersele

National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM); Centre for Economic Policy Research (CEPR)

Date Written: July 2009

Abstract

This paper documents a strong positive relationship between individual reported trust levels (obtained from the US General Social Survey) and the competitiveness of the sector in which an individual works (obtained from the US census of firms). This correlation is robust to the inclusion of all of the previously studied determinants of individual trust, e.g., income, education, age, sex, marital status, city size, religion, and is large; a one standard deviation increase in sectoral competitiveness makes respondents approximately five percent more likely to answer the canonical trust question with a "usually trust" as opposed to a "usually don’t trust" response. The addition of a rich set of workplace controls shows that this correlation is not likely to be driven by the size of the workplace, the amount of supervision, or related to a congenial work culture. It also appears that it is not due to selection (i.e., trustworthy or trusting individuals selecting into competitive sectors) or risk aversion, but instead seems to be due to individuals becoming more trusting the longer their experience in competitive sectors. We conjecture that trust levels are high when workplaces are characterized by high contributions of discretionary effort, i.e., when co-workers are more likely to be trustworthy. We develop a model which shows that such discretionary efforts are more likely to arise when competition within a sector is high. Competition mitigates incentives for free-riding by imposing costly shut-down on poor performing firms, makes employees more trustworthy, and thus increases trust. The model generates a positive correlation between trust and sectoral competitiveness, displays a threshold effect, suggests a non-monotonic relationship between competition and job security, and predicts patterns for a number of other variables. The data displays a high degree of consistency with these predictions.

Keywords: Competition, Trust, Values

JEL Classification: D10, J54

Suggested Citation

Francois, Patrick and Van Ypersele, Tanguy, Doux Commerces: Does Market Competition Cause Trust? (July 2009). CEPR Discussion Paper No. DP7368. Available at SSRN: https://ssrn.com/abstract=1461997

Patrick Francois

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

Tanguy Van Ypersele (Contact Author)

National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM) ( email )

Centre de la Vieille Charité
2 rue de la Charité
Marseille, 13002
France
+33 4 4293 5983 (Phone)
+33 4 4293 0968 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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