Knack, Stephen and Zak, Paul J. (2001): Building trust: public policy, interpersonal trust and economic development. Published in: Supreme Court Economic Review , Vol. 10, (2002): pp. 91-107.
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Zak & Knack (2001) demonstrate that interpersonal trust substantially impacts economic growth, and that sufficient interpersonal trust is necessary for economic development. To investigate the ability of policy-makers to affect trust levels, this paper builds a formal model characterizing public policies that can raise trust. The model is used to derive optimal funding for trust-raising policies when policy-makers seek to stimulate economic growth. Policies examined include those that increase freedom of association, build civic cultures, enhance contract enforcement, reduce income inequality, and raise educational levels. Testing the model's predictions, we find that only freedom, redistributive transfers, and education efficiently and robustly stimulate prosperity. They do this by strengthening the rule of law, reducing inequality, and by facilitating interpersonal understanding, all of which raise trust.
|Item Type:||MPRA Paper|
|Original Title:||Building trust: public policy, interpersonal trust and economic development|
|Keywords:||trust, growth, inequality, rule of law, property rights, development|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth
P - Economic Systems > P4 - Other Economic Systems > P48 - Political Economy ; Legal Institutions ; Property Rights ; Natural Resources ; Energy ; Environment ; Regional Studies
|Depositing User:||Stephen Knack|
|Date Deposited:||16. Sep 2010 15:38|
|Last Modified:||11. Feb 2013 18:41|
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