Header

UZH-Logo

Maintenance Infos

The causal effect of trust


Bartling, Björn; Fehr, Ernst; Huffman, David; Netzer, Nick (2018). The causal effect of trust. Working paper series / Department of Economics 304, University of Zurich.

Abstract

Trust affects almost all human relationships – in families, organizations, markets and politics. However, identifying the conditions under which trust, defined as people's beliefs in the trustworthiness of others, has a causal effect on the efficiency of human interactions has proven to be difficult. We show experimentally and theoretically that trust indeed has a causal effect. The duration of the effect depends, however, on whether initial trust variations are supported by multiple equilibria. We study a repeated principal-agent game with multiple equilibria and document empirically that an efficient equilibrium is selected if principals believe that agents are trustworthy, while players coordinate on an inefficient equilibrium if principals believe that agents are untrustworthy. Yet, if we change the institutional environment such that there is a unique equilibrium, initial variations in trust have short-run effects only. Moreover, if we weaken contract enforcement in the latter environment, exogenous variations in trust do not even have a short-run effect. The institutional environment thus appears to be key for whether trust has causal effects and whether the effects are transient or persistent.

Abstract

Trust affects almost all human relationships – in families, organizations, markets and politics. However, identifying the conditions under which trust, defined as people's beliefs in the trustworthiness of others, has a causal effect on the efficiency of human interactions has proven to be difficult. We show experimentally and theoretically that trust indeed has a causal effect. The duration of the effect depends, however, on whether initial trust variations are supported by multiple equilibria. We study a repeated principal-agent game with multiple equilibria and document empirically that an efficient equilibrium is selected if principals believe that agents are trustworthy, while players coordinate on an inefficient equilibrium if principals believe that agents are untrustworthy. Yet, if we change the institutional environment such that there is a unique equilibrium, initial variations in trust have short-run effects only. Moreover, if we weaken contract enforcement in the latter environment, exogenous variations in trust do not even have a short-run effect. The institutional environment thus appears to be key for whether trust has causal effects and whether the effects are transient or persistent.

Statistics

Downloads

9 downloads since deposited on 23 Oct 2018
9 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C91, D02, D91, E02
Uncontrolled Keywords:Trust, causality, equilibrium selection, belief distortions, incomplete contracts, screening, institutions
Language:English
Date:October 2018
Deposited On:23 Oct 2018 07:34
Last Modified:15 Jan 2019 13:29
Series Name:Working paper series / Department of Economics
Number of Pages:71
ISSN:1664-7041
Additional Information:Auch erschienen als IZA discussion paper series No. 11917
OA Status:Green
Official URL:http://www.econ.uzh.ch/static/workingpapers.php?id=983
Related URLs:https://www.iza.org/publications/dp/11917/the-causal-effect-of-trust

Download

Download PDF  'The causal effect of trust'.
Preview
Content: Published Version
Filetype: PDF
Size: 907kB