TRUST IN TRANSITION: CROSS COUNTRY AND FIRM EVIDENCE

Martin Raiser (), Alan Rousso () and Franklin Steves ()

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper uses data from a large survey of firms across 26 transition countries to examine the determinants of trust in the transition process. We first introduce a new measure of trust between firms: the level of prepayment demanded by suppliers from their customers in advance of delivery. Using this new measure, we confirm earlier findings that trust is higher where firms have confidence in third party enforcement through the legal system. However, the fairness and honesty of the courts are a more important determinant of interfirm trust than are the courts’ efficiency or ability to enforce decisions. We then examine the role of business networks in building trust and find that networks based around personal ties – family and friends – and business associations actively promote the development of trust, while business networks based on enterprise insiders and government agencies do not. Finally, we find that country-level effects are significantly more important determinants of interfirm trust than are firm-level effects.

Keywords: Trust; Prepayment; Courts; Business Networks (search for similar items in EconPapers)
JEL-codes: C14 C22 C51 E43 F31 F33 F36 P59 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2004-01-01
New Economics Papers: this item is included in nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Related works:
Working Paper: Trust in Transition: Cross-country and Firm Evidence (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2004-640

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