(February 2011) The Effect of Excessive Trust on Sustainable Development

The Effect of Excessive Trust on Sustainable Development image
Trust is essential for cooperation and the development of society and its institutions. Comparative studies examining trust from a multinational prospective provide empirical evidence for the positive correlation between the level of trust and economic growth; equal wage distribution; education; democratization; and absence of governmental corruption. Despite the vast body of literature on the positive influence of trust on society and the economy, recent research on the negative influence of excessive trust has emerged as an important area of concern.

In this context, we theoretically and empirically analyze the potential negative aspects of trust on sustainable social, economic and environmental, development. Our research questions are: What is excessive trust and how can it be measured? What are the conditions under which the correlation between trust and sustainable development is negative? What are the terms under which trust is negatively correlated with equality and welfare? What are the conditions under which trust is correlated with environmental deterioration? And what is the optimal level of trust that is required for sustainability?

Our research consists of two major stages. First we construct a model of trust by which we conceptualize "excessive trust" and its negative correlation with sustainable social, economic and environmental development (SSEED). Theory relating excessive trust to SSED is drawn from the literature on social capital theory, non-cooperative game theory, and the political thought of Plato and Hobbes. Following a theoretical development of the concept "excessive trust", we present an empirical cross-national examination of the correlation between "excessive trust" and SSEED. We hypothesize that excessive trust harms SSEED. We quantify "excessive trust" and econometrically estimate the correlation between trust and SSEED using cross-section data of countries worldwide in a panel design. Specifically, we use the World Value Survey and the International Social Survey Program data to measure trust. For SSEED examination we use the World Bank data and the Environmental Performance Index.

Preliminary results show that the correlation between trust and SSEDD exhibits an inverse U shape pattern, i.e. countries with moderate levels of trust demonstrate better SSEDD performance than countries with either low or high level of trust. Additional tests show that high levels of trust are also associated with environmental deterioration. Along with the substantial support to the theory of excessive trust, the findings might also benefit international policy initiatives of trust creation.