The principal objective of this research paper is to gain an in-depth understating on what is the critical driver of trust in the market, whether it is social capital or institutions. Works by several authors such as Robert Putnam, Ostrom, Francis Fukuyama, Douglass North, among others were used as primary sources for the research. It is, however, essential to note that there are no proven theories on what is the primary driver of trust in the market, but it is imperative to study a market to know whether institutions or social capital are the primary driver of trust in that particular market. The merits, demerits, and the composition of trust in social capital and institutions are identified in this paper. Generalized trust, values, and norms of reciprocity and cooperation are viewed as the key pillars of social capital and have an undeniable influence on confidence in markets. Trust in institutions, on the other hand, is influenced by the type of institution and institutional change. Organizations are viewed more formally by players in a market and are conceived to be credible; hence one cannot ignore their influence on trust in the market. According to this paper, trust in markets is driven by both social capital and institutions. One cannot solely rely on one and ignore the other. The interdependent relationship existing between institutions and social capital has a significant impact on economic, financial and financing decisions of the players in a market. Developing an even-handed, balanced employment of trust in social capital and trust in institutions could positively influence the socio-economic conditions of any market. In other words, to achieve their primary objective, which is profit maximization, the participants in a market have to learn how to strike a balance in the levels of trust they place on either social capital or institutions.
KeywordsTrustSocial CapitalInstitutions
Adler, P. S. (2001). Market, Hierarchy, and Trust: The Knowledge Economy and the Future of Capitalism. Organization Science, 12, 215-234. https://doi.org/10.1287/orsc.12.2.215.10117
Bourdieu, P. (1980). Le capital social. Actes de la recherche en sciences sociales, 31, 2-3.
Breuskin, I. (2012). Social Capital and Governmental Institutions. Living Reviews in Democracy, 3, 35.
Burawoy, M. (1976). Beyond Contract: Work, Power and Trust Relations. Alan Fox, 55.
Coleman, J. S. (1988). Social Capital in the Creation of Human Capital. American Journal of Sociology, 94, 95-120. https://doi.org/10.1086/228943
Edwards, B., & Foley, M. W. (1998). Civil Society and Social Capital beyond Putnam. American Behavioral Scientist, 42, 124-139. https://doi.org/10.1177/0002764298042001010
Evans, P. (1996). Government Action, Social Capital and Development: Reviewing the Evidence on Synergy. World Development, 24, 1119-1132. https://doi.org/10.1016/0305-750X(96)00021-6
Fafchamps, M. (2006). Development and Social Capital. The Journal of Development Studies, 42, 1180-1198. https://doi.org/10.1080/00220380600884126
Farrell, H., & Knight, J. (2003). Trust, Institutions, and Institutional Change: Industrial Districts and the Social Capital Hypothesis. Politics & Society, 31, 537-566. https://doi.org/10.1177/0032329203256954
Ferragina, E. (2013). The Socio-Economic Determinants of Social Capital and the Mediating Effect of History: Making Democracy Work Revisited. International Journal of Comparative Sociology, 54, 48-73. https://doi.org/10.1177/0020715213481788
Fukuyama, F. (2001). Social Capital, Civil Society and Development. Third World Quarterly, 22, 7-20. https://doi.org/10.1080/713701144
Gabre-Madhin, E. Z. (2001). Market Institutions, Transaction Costs, and Social Capital in the Ethiopian Grain Market (Vol. 124, p. 24). Washington DC: International Food Policy Research Institute.
Gilson, L. (2003). Trust and the Development of Health Care as a Social Institution. Social Science & Medicine, 56, 1453-1468.
Gregory, R. J. (1999). Social Capital Theory and Administrative Reform: Maintaining Ethical Probity in Public Service. Public Administration Review, 59, 63-75. https://doi.org/10.2307/977480
Hardin, R. (2002). Trust and Trustworthiness (pp. 28-193). New York, NY: Russell Sage Foundation.
Hardin, R. (2015). Collective Action (p. 125). Abingdon-on-Thames: Routledge.
Heller, F. A. (1998). Organizational Participation: Myth and Reality (p. 35). Oxford: Oxford University Press.
Kinghorn, J. (2013). The Internet: An Investigation into the Contemporary Sources of Social Capital. Sigma: Journal of Political and International Studies, 30, 5.
Knack, S., & Keefer, P. (1997). Does Social Capital Have an Economic Payoff? A Cross-Country Investigation. The Quarterly Journal of Economics, 112, 1251-1288. https://doi.org/10.1162/003355300555475
Lam, Y. H., Zhang, Z., & Ong, K. L. (2005). Trading in Open Marketplace using Trust and Risk. In IEEE/WIC/ACM International Conference on Intelligent Agent Technology (pp. 471-474). Piscataway, NJ: Institute of Electrical and Electronics Engineers.
Myeong, S., & Seo, H. (2016). Which Type of Social Capital Matters for Building Trust in Government? Looking for a New Type of Social Capital in the Governance Era. Sustainability, 8, 322. https://doi.org/10.3390/su8040322
Nahapiet, J., & Ghoshal, S. (1998). Social Capital, Intellectual Capital, and the Organizational Advantage. Academy of Management Review, 23, 242-266.
Nooteboom, B. (2006). Social Capital, Institutions and Trust (p. 43).
North, D. C. (1990). Institutions, Institutional Change and Economic Performance (p. 33). Cambridge: Cambridge University Press.
Ostrom, E. (2000). Social Capital: A Fad or a Fundamental Concept. Social Capital: A Multifaceted Perspective, 172, 195-198.
Oyen, E. (2002). Social Capital Formation: A Poverty Reducing Strategy (p. 3).
Paxton, P. (1999). Is Social Capital Declining in the United States? A Multiple Indicator Assessment. American Journal of Sociology, 105, 88-127. https://doi.org/10.1086/210268
Portes, A. (1998). Social Capital: Its Origins and Applications in Modern Sociology. Annual Review of Sociology, 24, 1-24. https://doi.org/10.1146/annurev.soc.24.1.1
Putnam, R. (2001). Social Capital: Measurement and Consequences. Canadian Journal of Policy Research, 2, 41-51.
Putnam, R. D., Leonardi, R., & Nanetti, R. Y. (1994). Making Democracy Work: Civic Traditions in Modern Italy (p. 53). Princeton, NJ: Princeton University Press.
Qurniati, R., Febryano, I. G., & Zulfiani, D. (2017). How Trust Influence Social Capital to Support Collective Action in Agroforestry Development? Biodiversitas, 18, 1201-1206.
Rothstein, B., & Stolle, D. (2001). Social Capital and Street-Level Bureaucracy: An Institutional Theory of Generalized Trust. In ESF Conference Social Capital: Interdisciplinary Perspectives (pp. 71-83). United Kingdom: Exeter.
Rothstein, B., & Stolle, D. (2002). How Political Institutions Create and Destroy Social Capital: An Institutional Theory of Generalized Trust. In Delivery at the Annual Meeting of the American Political Science Association (pp. 52-79). Boston, MA.
Six, B., Van Zimmeren, E., Popa, F., & Frison, C. (2015). Trust and Social Capital in the Design and Evolution of Institutions for Collective Action. International Journal of the Commons, 9, 151-176. https://doi.org/10.18352/ijc.435
Sobel, J. (2002). Can We Trust Social Capital? Journal of Economic Literature, 40, 139-154.
Tendler, J., & Amorim, M. A. (1996). Small Firms and Their Helpers: Lessons on Demand. World Development, 24, 407-426. https://doi.org/10.1016/0305-750X(95)00155-6
Uzzi, B. (1999). Embeddedness in the Making of Financial Capital: How Social Relations and Networks Benefit Firms Seeking Financing. American Sociological Review, 64, 481-505. https://doi.org/10.2307/2657252
Weber, M. (2002). The Protestant Ethic and the “Spirit” of Capitalism and Other Writings (p. 16). London: Penguin.