Abstract

Trust is essential for the market economy: it reduces transactions costs and facilitates cooperation between economic agents. In this chapter I provide an overview of how trust has been defined and measured in the literature. I review the role of trust in the market, command, and transition economies, distinguishing between particular and extended trust. Extended trust plays a crucial role in economic development, yet it is lacking in transition economies due to the socialist legacy. I discuss how particular and extended trust were affected by communism and the turmoil of early transition, before turning to review some key debates on how extended trust is created and how it relates to particular trust and the institutional environment.

Keywords

Trust Transaction Costs Informal Institutions Networks Social Capital 

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