Contract Enforceability and the Evolution of
Social Capital
Published February 2013, Journal of
Law, Economics and Organization
Abstract Social capital appears to
have significant consequences for economic development, yet we know
little about how social capital develops or the role of government
institutions in promoting or hindering that development. The two
key approaches to social capital, as civic engagement or as
generalized trust, are combined in a single model focusing on the
role of contract enforcement in their development. Contract
enforcement is shown to have nonmonotonic effects on civic
engagement, generating nonmonotonic effects on the evolution of
generalized trust. In particular, moderate levels of contracting
institutions may crowd-in civic engagement and trust, whereas high
levels of contracting institutions have the opposite effect.
Furthermore, the model generates a low-trust trap in which
contracting institutions are ineffective at promoting civic
engagement or trust. The full paper is available through the JLEO.