Working Paper: CEPR ID: DP15250
Authors: Luigi Guiso; Alexey Makarin
Abstract: Mutually beneficial trades often rely on both trust and trustworthiness. In exchanges where no history of behavior is observable, however, where does trust come from? Recent evidence suggests that the level of affinity parties in an exchange feel for each other positively affects trustworthiness and can, therefore, affect trust. We propose a simple model that predicts a positive relationship between trust beliefs, affinity, and trustworthiness and a negative relationship between the dispersion of trust beliefs and affinity level. Furthermore, the model suggests that trust should be slower to update after a shock to trustworthiness when affinity is high. We show that the model's predictions are supported by data from two unrelated datasets—a proprietary survey of Italian entrepreneurs and an extensive international survey (Eurobarometer). Finally, using data on international trade, we show that, in line with our model, adverse shocks to trustworthiness cause a reallocation of trade from low-affinity to high-affinity partners, and especially so in trust-intensive industries.
Keywords: trust; affinity; trustworthiness; information acquisition
JEL Codes: D8; D83; D9; F1; Z1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Affinity (Y80) | Stability of Trust (C62) |
| Trustworthiness Shocks (D80) | Trade Reallocation from Low Affinity to High Affinity Partners (F16) |
| Affinity (Y80) | Trust (G21) |
| Affinity (Y80) | Dispersion of Trust Beliefs (Z13) |
| Economic Shocks (F69) | Trust (Low Affinity) (Y50) |
| Economic Shocks (F69) | Trust (High Affinity) (Y50) |