Does trust in institutions have an economic payoff? Evidence from India

Abstract

Recent studies in economic development, have documented significant economic payoff to trust/social capital.However, most of these studies focus on quantifying the economic effects of inter-personal trusts (e.g. trusting and trustworthiness), or social network. But data also show that individual incomes and trusts in country’s institutions vary greatly. Are these variations systematic? Alternatively, are individuals who trust in country’s institutions economically better off than those who do not? In this study, we address this question and quantify the economic effects of trusts in country’s institutions (e.g. schools, military, politicians, judiciary, and state government), using a representative household survey data from India, conducted during 2004-2005. Among many results, we find that households with greater trust in police have higher per capita income, while households with greater trust in schools, have lower income.