Public trust, the law, and financial investment

How does trust evolve in markets? What is the optimal level of regulation and how does this affect trust formation and economic growth? In a theoretical model, we analyze these questions, given the value of social capital and the potential for growth in the market. When social capital is valuable, r...

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Bibliographic Details
Published inJournal of financial economics Vol. 92; no. 3; pp. 321 - 341
Main Authors Carlin, Bruce Ian, Dorobantu, Florin, Viswanathan, S.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.06.2009
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Financial Economics
Subjects
Economic growth
Economic models
Economic theory
Investment
Market analysis
Regulation
Social capital
Studies
Trust
Trust Regulation Economic growth
Valuation
D18
Regulation
D11
Economic growth
Trust
D14
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Summary:How does trust evolve in markets? What is the optimal level of regulation and how does this affect trust formation and economic growth? In a theoretical model, we analyze these questions, given the value of social capital and the potential for growth in the market. When social capital is valuable, regulation and trustfulness are substitutes. In this case, regulation may cause lower aggregate investment and decreased economic growth. When the social capital is less valuable, regulation and trustfulness may be complements. In the paper, we analyze the optimal level of regulation and highlight the novel predictions of the model.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2008.07.001