Cultural Transmission and the Roots of Trust: Theory and Evidence

Joint project with Avi Tilman.

Trust and reciprocity are known to be important elements in reducing transactions costs associated with contractual enforcement, thus facilitating the operation of markets.  Thus, in cross-country regressions, trust has been found to correlate strongly with GDP and economic growth.

Our model posits that in developing economies where social security systems are of limited relevance, parents raise children as investments in order to ensure that they will have economic support in their old age.   By socializing their children to have preferences for reciprocity, parents make it more likely that their children will support them.  Parents' incentive to invest in such "moral education" is higher when they expect their children to have higher incomes, since transferring income to their parents is assumed to be a normal good. 

We focus on the effects of two variables on the cultural transmission of preferences for reciprocity, which in turn enable a high level of social trust.  One variable is a "long run" variable:  harshness of climate and unsuitability of land for agriculture, which (thousands of years ago) forced individuals to rely on hunting and gathering rather than horticulture as their primary means of survival.  Our second variable is a "short run" variable, namely expectations of economic growth.  We present evidence from experimental data and survey data in support of these hypotheses.