Social Trust, Cooperation, and Human Capital

Fali Huang ()

No 610, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: The importance of social trust on economic growth has been suggested by many empirical works. This paper formalizes the concept of social trust and studies its formation process in a game theoretic setting. It provides plausible explanations for a wide range of empirical and experimental findings. The main results of the paper are as follows. For utility-maximizing players, cooperation arises in one-period prisoner’s dilemmas if and only if there is social trust. The amount of social trust in a given game is determined by the distribution of players’ cooperative tendency. Cooperative tendency is in essence a component of human capital distinct from cognitive ability. Its investment, however, is typically not efficient because the social returns are always strictly larger than individual returns. This positive investment externality leads to multiple equilibria in social trust formation, but a unique stable equilibrium may also exist. The different effects of legal institutions, information structure and education programs on social trust are also investigated

Keywords: social trust; cooperative tendency; prisoner's dilemma (search for similar items in EconPapers)
JEL-codes: J24 Z13 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-bec, nep-cbe and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Social Trust, Cooperation, and Human Capital (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:610

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