Matters of trust: Findings from the first trust experiments in Western Balkans

Trust is fundamental to voluntary exchange and economic development. Economic development, however, requires effectiveness of markets and incentives for investment, which in turn require trust. The paper reports on trust in a development context using first trust experiments in a Western Balkan country (Montenegro), a post-experiment survey and econometric analysis relating trust to identity and other personal attributes in the setting of a small recently-independent post-socialist, post-crisis society. External validity was sought by providing sufficient material reward to balance identity-related expressive motives and by having two groups of student subjects with different age and commercial experience. The paper reviews cultural priors that can be expected to affect trust and distinguish between generalized trust that can be socially beneficial and particularized trust that can be disadvantageous for development. The empirical results suggest that trust among private individuals is not an impediment to development in Montenegro and that the observed trust is high compared to experiments in countries at similar income levels. As a result, policy reform can, in principle, improve economic and social outcomes. The results, however, raise questions of governance and political entrenchment as potential explanations for impediments to development.  The paper shows that the participants from the state university in Montenegro displayed trust and trustworthiness consistent with usual outcomes in high-income societies. But the participants from the Montenegrin private university showed the highest level of trust reported in cross-country experiments. They could apparently, based on their broader experiences, intuit or predict the reciprocating behavior of participants independent of group identity. The high trust exhibited in the experiments in Montenegro is consistent with cultural priors. However, the exceptionally high trust displayed by the private-university participants may also reflect experience with activity in the substantial informal sector of Montenegro, which operates outside impediments of government and regulatory controls.