Premium
Free to Trust: Economic Freedom and Social Capital
Author(s) -
Berggren Niclas,
Jordahl Henrik
Publication year - 2006
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.2006.00324.x
Subject(s) - predictability , explanatory power , economic freedom , causality (physics) , incentive , property rights , social capital , economics , property (philosophy) , index of economic freedom , power (physics) , capital (architecture) , index (typography) , law and economics , microeconomics , law , political science , market economy , philosophy , physics , archaeology , epistemology , quantum mechanics , world wide web , computer science , history
SUMMARY We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables in an attempt to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people.