Trust, Social Capital and Economic Development∗†

Many argue that elements of a society’s norms, culture or social capital are central to un-derstanding its development. However, these notions have been difficult to capture in economic models. Here we explore a possible role for ‘trustworthiness ’ as corresponding to social capital. Individuals are trustworthy when they perform in accordance with promises, even if this does not maximize their payoffs. The usual focus on incentive structures in motivating behaviour plays no role here. Instead, we emphasize more deep-seated modes of behaviour and consider trustworthy agents being socialized to act as they do. To model this socialization, we borrow from a process of preference evolution pioneered by Bisin and Verdier (2001). The model developed endogenously accounts for social capital and explores its role in the process of economic development. It cap-tures in a simple, formal way the interaction between social capital and the economy’s productive processes. The results obtained caution against rapid reform and provide an explanation for why late developing countries may not easily be able to transplant the modes of production that have proved useful in the West