Institutional Quality Causes Generalized Trust: Experimental Evidence on Trusting under the Shadow of Doubt

Abstract

Generalized trust is essential for collective action, which is at the heart of many societal problems. Institutional quality has been proposed as a driver of generalized trust, but while the correlation between the two is strong and robust, the evidence on the causal link is scant. We show that this relationship is causal. We first experimentally expose individuals to institutions of different quality, operationalized as their ability to prevent corrupt behavior. We then measure generalized trust using a trust game. The results show that institutional quality drives generalized trust and that this effect is generated by the mere doubt that corrupt behaviors might succeed, even without knowledge of occurrence or success of such behaviors. Cross-country comparisons with novel data support our results. Our contributions are the first causal experimental evidence on the link between institutional quality and trust and a novel experimental design for modeling institutional quality in laboratory settings.