3. Trust and Crisis Management

In the case of repeated games, the winning strategy is TIT FOR TAT, which starts with cooperation but punishes non-cooperative behavior (Axelrod 1984).

Trust and credibility are often mentioned together. The difference between them is the subject: if A is credible, B trusts him. However, given the importance of subjectivity, it has to be emphasized that trust and credibility do not necessarily go together—A might be credible but B might still not trust him because he had bad experiences in the past.

See the classic elaboration of this problem in Italy by Banfield (1958).

The concept of political elite in itself requires explanation. In the following I rely on the classic definition of Wright Mills, who defines it as the power elite, which “is composed of men whose positions enable them to transcend the ordinary environments of ordinary men and women; they are in positions to make decisions having major consequences” (Mills 1956/2000: 4). People belonging here are leading politicians, heads of major state institutions, prominent businessmen, and opinion leaders. Decisions on the economy are also often influenced by the representatives of intergovernmental institutions.

This guarantees that the losers accept the outcome even if they lost—since they do not lose everything and they retain the chance to win next time (Anderson et al. 2005). When even such basic trust is lacking, incentives emerge to act outside the constitutional framework.

See, for example, Algan and Cahuc (2010), Horvath (2013), Knack and Keefer (1997), Zak and Knack (2001).

This finding is qualified by Charron and Rothstein (2016), who argue that it is present only in a high-quality institutional environment. On the basis of date from 24 countries, they argue that the impact of education on trust disappears when the quality of institutions is low.

The importance of ethnic background in generalized trust is supported by other studies as well, such as Guiso et al. (2006).

In the past years, economic research has shown increasing attention to inequalities as evidenced by the best-selling volume of Thomas Piketty (2014) as well as the Nobel prize of Angus Deaton. Inequality is a systemic characteristic of market economies, which provide strong incentives to compete and innovate. Some degree of inequality is thus necessary for motivating performance. The question is when inequality can be considered excessive. In a review essay of Piketty’s book, Kornai (2015) lists numerous cases when great wealth is ethically justifiable or at least acceptable—such revolutionary innovators, managers of giant corporations, or stars in various fields. However, he also mentions several cases, when great wealth cannot be justified from an ethical perspective: those committing tax fraud, the mafia, or people designing Ponzi schemes. Inequality is often the result of exclusive institutions, which are described by Acemoglu and Robinson (2012). When talking about excessive inequalities, we are describing exclusive institutions and the poor chances for social mobility—rather than unequal performance on a competitive market.

A more precise definition and a deeper discussion concerning the rule of law will be given in Chap. 7.

These are described more in depth in Győrffy (2013): 28–33.

For a monographic exposition of the relationship between trust and tax compliance, see Braithwaite (2009). Recent surveys include Kastlunger et al. (2013) as well as Kogler et al. (2013).

For a formal presentation of this statement, see Obstfeld (1996).

For an extensive analysis, see the classic work of Shiller (2000).

The joint analysis of trust and trustworthiness indicate that trustworthiness and trusting behavior goes hand in hand. See Glaeser et al. (1999).

An earlier version of this part was published in Győrffy (2014): 485–489.