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Trust as an institutional factor of economic success
Abstract
Trust, as an important traditional informal institution of a society, has in recent decades come into focus of many social sciences and the economic science as well. Namely, trust is one of the key factors that determine the character of both human and social relations. There is a growing realization that, among other key factors of the market system effectiveness and efficiency, economic impacts are also determined by the appropriate level of trust that exists between economic actors. This paper analyzes the role of trust as a facilitating factor that enables a more successful development of economic activities in such an environment where economic actors deal with the problems of information asymmetry, incomplete contracts, an underdeveloped institutional framework, uncertainty etc. It is suggested that trust, both personal and institutional one, is a significant factor in economic success and development. At the same time, trust plays an important role in the successful implementation of a socio-economic transformation, which is especially relevant in transition countries.
... Also, social networks may bring along more control among colleagues and a higher quality of the effort made (Sabatini, 2008;Di Guilmi et al., 2008). Social capital has been claimed to lower uncertainty and the transaction costs (Beugelsdijk and van Schaik, 2005;Bjørnskov and Méon, 2010;Lekovic, 2012;Jankauskas and Šeputienė, 2007): trust within social networks serves as a substitute for a legal system, for example in contract monitoring and enforcement. When fewer resources have to be used for securing individuals and firms from theft and other dishonest practices, more resources can be devoted to production and improving technology. ...
... Furthermore, when people participate in social processes, they may feel more like a part of the system and may have more trust in institutions. Statistically significant positive regression coefficients of institutional trust and civic participation show that they serve, indeed, as a substitute or supplement for a legal system lowering uncertainty and transaction costs, as also noted by Beugelsdijk and van Schaik (2005); Bjørnskov and Méon, 2010;Lekovic (2012) and Jankauskas and Šeputienė (2007). A secure and stable environment where people and firms feel protected from possible dishonest practices or abrupt changes seems to be most important for high productivity. ...
... Scholars in political science argue that trust in political authorities is essential in the functioning of political systems (Norris 2017;Hetherington 1998;Levi and Stoker 2000). In economic research, trust as an informal institution is argued to be an important driver for human behavior and consequently, economic performance (Pitlik and Rode 2017;Rompf, Kroneberg, and Schl€ osser 2017;Lekovic 2012). ...
There is significant cross-country variation in COVID-19 fatalities worldwide. In this study, we analyze the relationship between political trust and fatalities from the COVID-1s9 pandemic. By performing a cross-country analysis and controlling for other determinants, we find that government trust is negatively associated with the excess mortality rate during the pandemic.
... Scholars in political science argue that trust in political authorities is essential in the functioning of political systems (Norris 2017;Hetherington 1998;Levi and Stoker 2000). In economic research, trust as an informal institution is argued to be an important driver for human behavior and consequently, economic performance (Pitlik and Rode 2017;Rompf, Kroneberg, and Schl€ osser 2017;Lekovic 2012). ...
... investment, human capital management, transaction costs, collective organization and collaboration, all of which determine economic prosperity and economic growth. (Lekovic, 2012) ...
p> Purpose: The purpose of this study is to examine the significance and the role of supplier rating as a formalised supplier quality measure to achieve better- negotiated prices and to identify price premium resulting from improved rating.
Methodology/Approach: Data from real B2B environment of electronic reverse auction SW solution ProeBiz were obtained and processed. Data from the reverse rating approach were used where the default rating value is 1 and improvements of rating lead to decreasing the rating value. Except standard descriptive statistics, non-parametric correlation and Kruskal-Wallis tests, the knowledge discovery techniques by decision trees CHAID algorithm were used.
Findings: From our empirical research results, there is the evidence of a significant positive relation of supplier quality or rating improvements on a negotiated price for suppliers. Improving rating from the default value (1.00) to (0.98-0.95) can lead to better- negotiated prices for suppliers in English auction expressed as price premium in the value of 4%.
Research Limitation/implication: Research has several limitations, esp. in the size of the sample and sectorial view as the research is based on data from construction, electro-mechanics and logistics sector.
Originality/Value of paper: The paper is original and not published in other publications.
... Also, increased trust is negatively related to economic inequality, which is a major hindrance to economic development in many countries, including developing countries (Rothstein & Stolle, 2002). This association of institutional trust with socio-economic development is evident in several studies on developing countries (see Lekovic, 2012;Montalvo, 2010). ...
The importance of institutional trust and its key determinants have been widely acknowledged in developed countries. However, in developing countries, where institutional trust has not been well established, its structural causes have not received adequate research emphasis. The aims of our study are: (1) to examine the direct effect of civic engagement on institutional trust; and (2) to examine the mediating effects of government dysfunction and government performance on the relationship between civic engagement and institutional trust. We conducted a structural equation modeling (SEM) analysis using data from the 2004 Afrobarometer Round 2.5 survey in South Africa (N = 2,400). We found a positive direct effect of civic engagement on institutional trust and indirect effects of civic engagement on institutional trust, mediated by government dysfunction and government performance, both individually and sequentially. Findings suggest that the development and implementation of policies enhancing civic engagement and good governance are needed to increase institutional trust. South Africa, a country with over 20 years of democracy, is on the path to enhancing civic engagement and building institutional trust. These goals can be achieved through building a society in which government is based on democratic values and civil society.
The chapter introduces the concept of institutional trust and its relevance for the subjective well-being of public-school teachers in Peru. Previous research has focused on trust among school members and their potential benefits for teachers' well-being at workplace. However, it is necessary to study teachers' trust towards the institutions that govern educational policies and their consequences on other aspects of their well-being. To address these gaps, data from the National Teachers Survey of Peru collected in 2016 and 2018 (N = 15,796) is used to study teachers' institutional trust. Factor analysis suggests these perceptions are configured in two dimensions: trust towards governance institutions and towards external organizations that promote teachers' rights. Regression models suggest that institutional trust is positive related to life satisfaction, self-esteem, job satisfaction at school, satisfaction with colleagues and principals. This research expands the current literature of trust on education in the Americas and developing contexts.
This study aimed to analyze social and institutional trust in Serbia and their demographic and socioeconomic correlates. Moreover, two alternative models on the direction of influence between social and institutional trust were tested. The European Social Survey data in the Serbian community sample (N = 1660, 49% women, mean age 52.5 years (SD = 17.7)) revealed generally low levels of all the aspects of trust, whereas trust in international institutions was the lowest. Participants who have lost a spouse or belonged to an older generation reported lower social trust and trust in international institutions, but higher trust in local institutions. Lower trust in local institutions but higher social trust was reported by participants of higher income and education. Model testing effects of social trust on institutional trusts showed a better fit than the reversed model. These results indicate the continuity of the 1990s' trust crisis: the epistemic hypervigilance and system that cannot be trusted. Mediators of the relationship between social and institutional trust should be investigated in future research.
The early 2020 witnessed Coronavirus disease 2019 (COVID-19) pandemic followed by a nationwide lockdown in the whole history for the first time. The entire world had to go for nationwide lockdown to curb the spread of such contagious and deadly disease. In short, the coronavirus outbreak and the subsequent lockdown had created a storm in the world giving rise to change in public with respect to parameters like trust in the government institutions, civic engagement, and so on. In this raising dilemma, multiple countries have acknowledged the significance of trusting institutions, especially during lockdown. It is also widely accepted that lives of individuals had been undergoing change ever since the spread of COVID-19. Likewise, public's trust in the institutions is directly related to the civic engagement. Civic engagement is commonly understood as a phenomenon that develops a difference in an individual's civic life by combining values, skills, motivation, as well as knowledge. Different forms of civic engagement include national service, volunteering, societal services, and so forth. The main focus of this article is to examine the influence of COVID-19 outbreak on general attitude of the citizens of Malaysia and India, their trust on the governing institutions, and the civic engagement. In other words, this study tries to assess the impact of the pandemic on variables such as attitude toward the lockdown, trust in institutions, and civic engagement. For this, the study adopted cross-sectional community questionnaire survey in two countries—Malaysia and India. The respondents selected for the study was 1437. The respondent's demographics, attitude toward lockdown, trust in institutions, and civic engagement during the lockdown were collected by means of convenience sampling technique. Later the collected data were measured in terms of descriptive statistics and regression analysis. Findings of the study stated that public's trust in the institution can be increased by enhancing the civic activities and implementing policies that govern and build the society.
The aim of the article is to present selected relationships between social trust and the development of a territorial unit. Social trust affects the level of cooperation in society and decides about the competitiveness of a territorial unit [12, p. 7]. The main thesis of the article is the author’s conviction that there is a significant correlation between social trust and the activity of citizens, the consequence of which is the development of territorial units. This relationship applies to different categories of units, the article mainly focuses on municipal units. The conclusions presented are a consequence of the analysis of information sources and surveys carried out in three cities: Cracow, Helsinki and Valletta. The socio-economic situation of Poland, Finland and Malta is varied, also due to historical and political conditions. Social trust in these cities depends on different factors. Everywhere, however, significantly affects the direction of urban development, accelerating and stabilising it. Trust is a component of social capital, which translates into the ability to build an innovative and modern economy. In countries where citizens trust each other, a sense of security increases which significantly affects well-being.
Today there is a substantial amount of research on social innovation. The idea that social innovation can be an effective way for dealing with societal challenges is manifested in policy discourses across many states. Although social innovation is promoted globally
regardless of the territorial and institutional context, social innovation is an inherently territorialised and context-dependent process arising within a complex environment of local discourses, policies and institutions.
The thesis builds on institutional theory with North’s formal and informal institutions (1991), Scott’s three pillar framework (2005) and institutional voids perspective. Drawing upon a qualitative multicase study research with seven organisations from the Murmansk
region, and an integrated theoretical framework, the present thesis contributes to the literature by exploring particular institutional factors shaping the emergence and development of social innovation in the Russian northern context. Furthermore, through the voices of social
innovation practitioners, the study tries to explore to what extent they are socially innovative and successful in filling institutional voids embedded in the emerging economy context. This
context-specific approach is used to shed light on the particular institutional voids addressed by social innovation practitioners in the Murmansk region.
The research setting is deliberately selected as an emerging economy, i.e. Russia which remains an underresearched country when it comes to social innovation and deals with plenty of institutional voids. Moreover, particular emphasis is placed on a northern context –
the Murmansk region as a research setting of the present study since it is believed to exhibit a high number of societal challenges and a challenging weak institutional environment.
My findings provide insights into distinct institutional factors constraining social innovation development in the Russian northern context. The results point to either dysfunction or a lack of formal and informal institutions facilitating social innovation. Furthermore, based on insights from the case studies, the findings demonstrate that social
innovation practitioners consider institutional voids as opportunities for development. The study reveals that social innovation practitioners address three categories of specific institutional voids embedded in the weak institutional environment, i.e. political, social and
economic voids.
Key words: social innovation, institutional theory, institutional voids, Russia, northern context, the Murmansk region, emerging economy
The design and implementation of the measures aimed at incorporating informal economic activities into the existing formal regulatory framework assume the knowledge of the causes and structure of the informal activity. The influence of the institutional factors that encourage the development of the shadow economy (the tax burden, the degree of the regulation of the economy, the capacity of the state administration) were the subject of extensive theoretical and empirical research. In contrast, the impact of social capital, i.e. the characteristics of social ties and relations, on the shadow economy has been investigated to a much lesser extent. Starting from the fact that the informal sector of the Serbian economy is so widespread that it represents a serious obstacle to the business activities of Serbian enterprises, the aim of this study is to investigate whether the characteristics of social ties and relations, or social capital in the Republic of Serbia (RS), represent a fertile ground for the growth of the shadow economy. In this context, the characteristics and frequency of social contacts, particularized trust and institutional trust will be separately analyzed as the determinants of the shadow economy in RS.
The paper provides an insight into the dominant trends of contemporary evolutionary economics and outlines the important issues related to the articulation of this approach in thinking about the economy. The paper also affirms a proposition on institutions as carrier structures of socio-economic evolution, whose numerous effects at the societal level are decoded through the coordination function. In addition to the market, the process of coordination also employs other non-market institutional structures, whose profile and operational principles are the product of the trajectories of cultural and historical evolution, different among social orders. Projects aimed at the transformation of the economic system are to be sensitized to an objectively conditioned diversity of the institutional structures of the world economy, and in this sense, should be very careful in the installation of „universal” reform solutions.
This second edition assesses some of the major refinements, extensions, and useful applications that have developed in neoinstitutionalist thought in recent years. More attention is given to the overlap between the New Institutional Economics and developments in economic history and political science. In addition to updated references, new material includes analysis of parallel developments in the field of economic sociology and its attacks on representatives of the NIE as well as an explanation of the institution-as-an- equilibrium-of-game approach. Already an international best seller, Institutions and Economic Theory is essential reading for economists and students attracted to the NIE approach. Scholars from such disciplines as political science, sociology, and law will find the work useful as the NIE continues to gain wide academic acceptance. A useful glossary for students is included. Eirik Furubotn is Honorary Professor of Economics, Co-Director of the Center for New Institutional Economics, University of Saarland, Germany and Research Fellow, Private Enterprise Research Center, Texas A&M University. Rudolph Richter is Professor Emeritus of Economics and Director of the Center for New Institutional Economics, University of Saarland, Germany. Copyright © Eirik G. Furubotn and Rudolf Richter 1998, 2005. All rights reserved.
Recent findings show an apparent erosion in the United States over the post-war years of ‘social capital’ understood as the propensity of individuals to associate together on a regular basis, to trust one another, and to engage in community affairs. This article examines the British case for
similar trends, finding no equivalent erosion. It proposes explanations for the resilience of social capital in Britain, rooted in educational reform, the transformation of the class structure, and government policy. It concludes by drawing some general lessons from the British case that stress the importance of the distributive dimensions of social capital and the impact that governments
can have on it.
Trust is a core concept in the continuing political science discourse on social capital and its meaning for democracy. In this article, the relationship between interpersonal trust, trust in political institutions and non‐institutionalised legal political participation is analysed based on data from the Eurobarometer surveys and the European/World Values Studies. The statistical relationship between interpersonal trust and political trust in nine European countries is found to be small, though generally positive. Thus, interpersonal trust cannot be regarded as an important antecedent or consequence of political trust. A different picture emerges regarding the relationship between political trust and legal non‐institutionalised participation: the lower political trust the higher the probability of engaging in direct action. Finally, a positive relationship between interpersonal trust and direct action is found, thereby pointing to trust as a precondition or consequence of non‐institutionalised political involvement. In sum, it appears that it is worthwhile to further pursue the study of social capital in the context of democratic politics.
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The Moral Foundations of Trust seeks to explain why people place their faith in strangers, and why doing so matters. Trust is a moral value that does not depend upon personal experience or on interacting with people in civic groups or informal socializing. Instead, we learn to trust from our parents, and trust is stable over long periods of time. Trust depends on an optimistic world view: the world is a good place and we can make it better. Trusting people are more likely to give through charity and volunteering. Trusting societies are more likely to redistribute resources from the rich to the poor. Trust has been in decline in the United States for over 30 years. The roots of this decline are traceable to declining optimism and increasing economic inequality, which Uslaner supports by aggregate time series in the United States and cross-sectional data across market economies.
This paper presents evidence that “social capital” matters for measurable economic performance, using indicators of trust
and civic norms from the World Values Surveys for a sample of 29 market economies. Memberships in formal groups—Putnam's measure
of social capital—is not associated with trust or with improved economic performance. We find trust and civic norms are stronger
in nations with higher and more equal incomes, with institutions that restrain predatory actions of chief executives, and
with better-educated and ethnically homogeneous populations.
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