A dynamic model of generalized social trust

Abstract

How does generalized social trust - a Trustor's willingness to allow anonymous Trustees to make decisions affecting the Trustor's own welfare without an enforceable contract or guarantee, despite the Trustees' incentives to exploit or defraud - come to predominate in a community? This article is organized around a theoretical argument about the dynamics of generalized trust. This argument is deduced from a formal model built on assumptions that are common in the existing literature on trust. We find three results. First, generalized trust and trustworthiness can thrive if reliable credentials allow people to distinguish between trustworthy and untrustworthy partners. Second, under a system of credential-dependent trust, the proportion of trustworthy persons in the population tends to cycle between high and low levels in the long run. Hence, the model may explain the currently observed decline in generalized trust in the United States as a part of a long-term cycle. Finally, trustworthy types can coordinate to dampen the trustworthiness cycle and (under some conditions) maintain trustworthy types as the majority in a society.