Doux Commerces: Does Market Competition Cause Trust?

Abstract: This paper explores the relationship between market competition and cooperative behavior. We show that there is a strong positive relationship between a proxy for cooperation, individual trust levels, and the competititiveness of the sector in which a respondent works. This correlation is robust to the inclusion of all of the previously studied determinants of individual trust, e.g., income, education, age, sex, marital status, city size, religion, and is large; a one standard deviation increase in sectoral competitiveness makes respondents between ten and twenty five percent more likely to answer the canonical trust question with a “usually trust ” as opposed to a “usually don’t trust ” response. The addition of a rich set of workplace module controls shows that this correlation is not likely to be driven by the size of the workplace, the amount of supervision, or measures of corporate culture. It also appears that it is not due to selection (i.e., trustworthy or trusting individuals selecting into competitive sectors) but instead seems to be due to individuals becoming more trustworthy the longer their experience in competitive sectors. We develop a simple model of cultural evolution to explain these findings. Cultural selection is between free-riding and trustworthiness, and sectoral level competition imposes additional costs to free-riding. Given firm performance, individuals always have incentive to free-ride. But since this can lead to poor firm performance, and firms in competitive sectors are more liable to be subject to market discipline, this generates a force selecting against free-riding. Th