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Zak, P. J., Knack, S. (2001). Trust and Growth. The Economic Journal 111 (470), 295-321

Why does trust vary so substantially across countries? This paper presents a general equilibrium growth model in which heterogeneous agents transact and face a moral hazard problem. Agents may trust those with whom they transact, but they also have the opportunity to invest resources in verifying the truthfulness of claims made by transactors. We characterise the social, economic and institutional environments in which trust will be high, and show that low trust environments reduce the rate of investment. The predictions of the model are examined empirically for a cross-section of countries and have substantial support in the data.

Authors

Zak, Paul J.

Paul J. Zak is Professor of Economics and Department Chair, as well as the founding Director of the Center for Neuroeconomics Studies at Claremont Graduate University.  Dr. Zak also serves as Professor of Neurology at Loma Linda University Medical Center, and is a Senior Researcher at UCLA. He...

Knack, Stephen

Stephen Knack is a Lead Economist in the World Bank's  Research Department and Public Sector Governance Department. His recent research addresses the impact of aid on policy reform and on public sector capacity and accountability.  He is a specialist on actionable governance...

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