Externalities and the Erosion of Trust

71 Pages Posted: 8 Jun 2023

See all articles by Gianmarco Daniele

Gianmarco Daniele

University of Milan - Faculty of Law; Bocconi University

Andrea FM Martinangeli

Burgundy School of Business; University of Gothenburg - Centre for Collective Action (CeCAR)

Francesco Passarelli

Bocconi University

Willem Sas

University of Stirling

Lisa Windsteiger

University of Salzburg

Date Written: 2023

Abstract

We present a theory linking political and social trust to explain trust erosion in modern societies. Individuals disagree on the seriousness of an externality problem, which leads to diverging policy opinions on how to solve it. This heterogeneity has two important effects on trust. First, disappointment with the policy rule enacted by the government breeds institutional distrust. Individuals that are more worried blame the government because the rule is too lenient. The less worried blame it even more because it is too intrusive. Second, as the rule also shapes individuals’ notion of civic behavior, it drives a wedge between what an individual expects from others and their actual behavior. This fuels social distrust. The more individuals are worried, the more they distrust others that are not complying with the rules. Our experimental survey conducted in four European countries shows how these trust dynamics came to the surface during the Covid-19 pandemic. Once led to think intensely about the virus, lower institutional trust was reported predominantly by respondents that were less worried about the virus, whereas social trust declined (more) for worried individuals. We lastly find that support for the welfare state erodes alongside sliding trust levels.

Keywords: social trust, institutional trust, heterogeneity, externalities, regulation, survey experiment, Covid-19, climate change, welfare, taxation

JEL Classification: D700, D720, H300, O520

Suggested Citation

Daniele, Gianmarco and Martinangeli, Andrea and Passarelli, Francesco and Sas, Willem and Windsteiger, Lisa, Externalities and the Erosion of Trust (2023). CESifo Working Paper No. 10474, Available at SSRN: https://ssrn.com/abstract=4470394 or http://dx.doi.org/10.2139/ssrn.4470394

Gianmarco Daniele (Contact Author)

University of Milan - Faculty of Law ( email )

Via Festa del Perdono, 7
20122 Milano
Italy

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136
Italy

Andrea Martinangeli

Burgundy School of Business ( email )

29 Rue Sambin
Dijon, 21000
France

University of Gothenburg - Centre for Collective Action (CeCAR) ( email )

Box 100, S-405 30
Gothenburg
Sweden

Francesco Passarelli

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Willem Sas

University of Stirling ( email )

Stirling, FK9 4LA
United Kingdom

Lisa Windsteiger

University of Salzburg ( email )

Akademiestraße 26
Salzburg, Salzburg 5020
Austria

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