Building Social Trust: A Human Capital Approach

• Main Author: HUANG, Fali
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2007
• Subjects: Labor Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/1028; https://ink.library.smu.edu.sg/context/soe_research/article/2027/viewcontent/trust2007_9_15.pdf
• Institution: Singapore Management University

Much evidence suggests individuals di¤er in their predisposition to cooperate, which is essentially a component of human capital. This paper examines the role of individual cooperative tendencies and their interactions with institutions in generating social trust; it also endogenizes cooperative tendencies using a human capital investment model. Multiple equilibria and ine¢ ciencies exist due to positive externalities. An innovative …nding is that, when institutions are more e¤ective in punishing defecting behaviors, more people invest in cooperative tendencies and hence the endogenous social trust is higher, though the equilibrium cooperative tendencies are lower. This paper provides a plausible explanation for many empirical and experimental results