ABSTRACT
We develop a model in which social capital builds trust, decreases misconduct, and facilitates economic transactions. Social capital refers to the value of social and psychological benefits from performing in accord with contractual promises. It reflects a common component via shared culture and an idiosyncratic component reflecting individual moral values. Opportunistic behavior is disciplined by a decrease in social capital, which manifests as social disapprobation and cognitive dissonance. Social capital works as both a substitute and complement with legal and market forces to discipline opportunistic behavior and build trust.
Dupont, Quentin and Karpoff, Jonathan M, A theory of social capital and trust (June 4, 2025), HKU Jockey Club Enterprise Sustainability Global Research Institute Paper No 2025/074.
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