Effects of Law and Social Network on Trust

This paper examines the two most hypothesized determinants of generalized trust: formal institutions and networks of voluntary associations. Formal institutions, such as the law, reduce the risk of betrayal by enforcing contracts and settling disputes. Dense networks of voluntary associations promote trust by encouraging horizontal relationships. Using data drawn from a sample of 72 countries, this paper finds that neither laws nor associations are robust determinants of generalized trust. The effects of laws on trust are significant for wealthy, industrialized countries only, while the effects of social networks are significant for countries with a more homogeneous socio-income base.