Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 05-7: Love Thy Neighbor: Bonding versus Bridging Trust

Odile Poulsen () and Gert Tinggaard Svendsen ()
Additional contact information
Odile Poulsen: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Gert Tinggaard Svendsen: Aarhus University, Institut for Public Policy, Postal: Aarhus University, Building 331, Institut for Public Policy, Bartholins Alle, 8000 Aarhus C

Abstract: We study how trust is generated in society. In a two-sector model, we analyze two communities. In the bonding community people do not trust people outside their regular networks. In the bridging community people choose to trust strangers when they meet them. The hypothesis is that when trust is only bonding, it cannot accumulate. Our theoretical contribution is to show that when trust is only bonding then the economy’s level of trust moves to an unstable equilibrium that may under certain conditions ‡uctuate forever. If, however, trust is also bridging, then trust will accumulate. Future research should seek to establish the appropriate institutional framework for establishing the optimal mix between both bonding and bridging social capital in society.

Keywords: Trust; two-sector model; chaos

JEL-codes: A12; C61; D90; O41

28 pages, September 2, 2005

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