nep-soc New Economics Papers
on Social Norms and Social Capital
Issue of 2010‒08‒21
nine papers chosen by
Fabio Sabatini
Euricse and University of Trento

  1. A trust-driven financial crisis.Implications for the future of financial markets By Luigi Guiso
  2. The Importance of Trust for Investment: Evidence From Venture Capital (Revision of DP 2009-43) By Bottazzi, L.; Da Rin, M.; Hellmann, T.
  3. Is the Just Man a Happy Man? An Empirical Study of the Relationship Between Ethics and Subjective Well-being By Harvey, James S. Jr.
  4. Government size and trust By Eiji Yamamura
  5. Migration and Culture By Gil S. Epstein; Ira N. Gang
  6. TRUST, TRUTH, STATUS AND IDENTITY, an experimental inquiry By Jeffrey V. Butler
  7. Motives of Socially Responsible Business Conduct By Graafland, J.J.; Kaptein, M.; Mazereeuw v/d Duijn Schouten, C.
  8. Lessons from Community Entrepreneurship: The Concept of Spawning By Burress, Molly J.; Cook, Michael L.
  9. Hiding an Inconvenient Truth: Lies and Vagueness (Revision of DP 2008-107) By Serra Garcia, M.; Damme, E.E.C. van; Potters, J.J.M.

  1. By: Luigi Guiso (European University Institute, EIEF and CEPR)
    Abstract: The financial crisis has brought to light diffuse opportunistic behaviour and some serious frauds. Because of this trust towards banks, bankers, brokers and the stock market has collapsed to unprecedented levels and there are so far no signs of recovery. This paper uses survey-based information to document the collapse of trust, show its link to the emergence of frauds in the financial industry and discuss its consequences for the demand of financial instruments, investors portfolios and more generally investors reliance on financial markets. It argues that unless serious changes happen in the behaviour of the financial industry, the move towards safer portfolios and away from ambiguous securities that lack of trust entails, will have adverse effects on the availability and cost of equity financing. Accordingly a number of proposals to restore trust are discussed. Their common feature is to restore trust – a belief – by limiting the scope for opportunistic behaviour through a transfer of power from financial intermediaries to investors.
    Date: 2010
  2. By: Bottazzi, L.; Da Rin, M.; Hellmann, T. (Tilburg University, Center for Economic Research)
    Abstract: We examine the effect of trust on financial investment and contracting decisions in a micro-economic environment where trust is exogenous. Using hand-collected data on European venture capital, we show that the Eurobarometer measure of trust among nations significantly affects investment decisions. This holds even after controlling for investor and company fixed effects, geographic distance, information and transaction costs. The national identity of venture capital firms’ individual partners further contributes to the effect of trust. Education and work experience reduce the effect of trust but do not eliminate it. We also examine the relationship between trust and sophisticated contracts involving contingent control rights and find that, even after controlling for endogeneity, they are complements, not substitutes.
    Keywords: Venture Capital;Social Capital;Trust;Financial Contracts;Corporate Governance.
    JEL: G24 G34 K22 M13
    Date: 2010
  3. By: Harvey, James S. Jr.
    Abstract: In this paper I consider the question of whether ethical decision-making affects a personâs happiness. Using cross-country data from the World Values Survey, I find that people who agree that it is never justifiable to engage in ethically-questionable behaviors report that they are more satisfied with their life than people who are more tolerant of unethical conduct, even after controlling for other factors known to affect self-reported happiness. The size of the ethics effect is roughly similar to that of a modest increase in income, being married and attending church, while the effect is smaller than that of having poor health or being dissatisfied with oneâs personal finances. These results are robust across the four countries studied (the US, Canada, Mexico and Brazil), although there is variation in the ethics and happiness relationship across countries. One implication of this study is that a consideration of a societyâs ethical norms will improve our understanding of the subjective well-being of people.
    Keywords: Happiness, subjective well-being, ethics, World Values Survey, Labor and Human Capital, D63, D99, Z13,
    Date: 2009–12–02
  4. By: Eiji Yamamura
    Abstract: This paper uses individual level data (the Japanese General Social Survey, 2001) to examine how government size influences generalized trust. After controlling for income inequality, population mobility, city size and various individual characteristics, I found: (1) Using all samples, government size is not associated with generalized trust, and (2) After splitting the sample into worker and non-worker samples, government size does not influence generalized trust for non-workers whereas it significantly reduces generalized trust for workers. This suggests that workers, through their work experience, might confront the greater bureaucratic red tape coming from “larger government”, leading to negative externality effects on the trustful relationship in the labor market.
    Keywords: Government size; Generalized trust.
    JEL: D30 Z13
    Date: 2010–06–06
  5. By: Gil S. Epstein (Department of Economics, Bar Ilan University, IZA and CReAM); Ira N. Gang (Department of Economics, Rutgers University, IZA and CReAM)
    Abstract: Culture is not new to the study of migration. It has lurked beneath the surface for some time, occasionally protruding openly into the discussion, usually under some pseudonym. The authors bring culture into the open. They are concerned with how culture manifests itself in the migration process for three groups of actors: the migrants, those remaining in the sending areas, and people already living in the recipient locations. The topics vary widely. What unites the authors is an understanding that though actors behave differently, within a group there are economically important shared beliefs (customs, values, attitudes, etc.), which we commonly refer to as culture. Culture and identify play a central role in our understanding of migration as an economic phenomenon; but what about them matters? Properly, we should be looking at the determinants of identity and the determinants of culture (prices and incomes, broadly defined). But this is not what is done. Usually identity and culture appear in economics articles as a black box. Here we try to begin to break open the black box.
    Date: 2010–08
  6. By: Jeffrey V. Butler (EIEF)
    Abstract: In an experiment involving a standard trust game and a costless signalling game, it is demonstrated that economically relevant norm-based behaviors (trust, reciprocity and truth-telling) vary with social identity. The experimental procedure induced two trivial social identities. In one version, a status difference was induced. The results permitted a succinct description of identity effects: subjects held own-group members to a higher standard; and high status subjects held everyone, including themselves, to a higher standard. To illustrate the “high status/high standards” phenomenon, subjects’ “standards” were estimated from a simple identity model for a subset of the data.
    Date: 2010
  7. By: Graafland, J.J.; Kaptein, M.; Mazereeuw v/d Duijn Schouten, C. (Tilburg University, Center for Economic Research)
    Abstract: The social and ecological challenges that governments face have raised their interest in socially responsible business conduct (SRBC). In this article we analyze the motives of executives to perform SRBC. We distinguish three types of motives: financial, ethical and altruistic motives. We test the hypotheses on a sample of 473 executives. The estimation results show that SRBC is driven by a combination of intrinsic and extrinsic motives, but that the intrinsic motives are stronger than the extrinsic motive.
    Keywords: intrinsic motivation;extrinsic motivation;corporate social responsibility;socially responsible business conduct
    JEL: M14 Z12
    Date: 2010
  8. By: Burress, Molly J.; Cook, Michael L.
    Abstract: Capital-constrained cooperatives are being challenged by producer-members to provide vertical integration opportunities. We find evidence producer groups are utilizing an investment strategy described as spawning. Producer-investors familiar with a particular organizational form and who have developed joint investment networks were more apt to invest in newly spawned ventures.
    Keywords: Spawning, Collective Entrepreneurship, Cooperative Development, Community/Rural/Urban Development,
    Date: 2009–08
  9. By: Serra Garcia, M.; Damme, E.E.C. van; Potters, J.J.M. (Tilburg University, Center for Economic Research)
    Abstract: When truth conflicts with efficiency, can verbal communication destroy efficiency? Or are lies or vagueness used to hide inconvenient truths? We consider a sequential 2-player public good game in which the leader has private information about the value of the public good. This value can be low, high, or intermediate, with the latter case giving rise to a prisoners’ dilemma. Without verbal communication, efficiency is achieved, with contributions for high or intermediate values. When verbal com- munication is added, the leader has an incentive to hide the precise truth when the value is intermediate. We show experimentally that, when communication about the value must be precise, the leader frequently lies, preserving efficiency by exaggerating. When communication can be vague, the leader turns to vague messages when the value is intermediate, but not when it is high. Thus, she implicitly reveals all values. Inter- estingly, efficiency is still preserved, since the follower ignores messages altogether and does not seem to realize that vague messages hide inconvenient truths.
    Keywords: Communication;Efficiency;Lying;Public Goods.
    JEL: C72 C92 D83 H41
    Date: 2010

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