Evolution of Honesty and Trust among Strangers
32 Pages Posted: 19 Sep 2017 Last revised: 30 Jun 2018
Date Written: July 21, 2018
I study the trade-off between relationship-based and impersonal exchanges. I model an economy where trade with strangers is voluntary, anonymous, one-shot, and self- interested. Traders follow ethical routines that are sticky and evolutionarily compete. I find that under a narrow set of conditions trust and honesty among strangers can emerge when there is 1) a high benefit from engaging with strangers (utility condition), and 2) a threshold adoption of standardized business routines that reduced partiality in business (threshold condition). If the above conditions hold, impersonal institutions can emerge. Cycles of trust, dishonesty, distrust, and honesty can sustain impersonal exchange.
Keywords: trust, routines, punctuated equilibrium, institutions, culture, evolution, Europe
JEL Classification: A13, A14, C73, N93, Z13
Suggested Citation: Suggested Citation