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Journal of Law, Economics, and Organization Advance Access published online on December 2, 2007
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewm060
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© The Author 2007. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Trust in Transition: Cross-Country and Firm Evidence

Martin Raiser*

The World Bank

Alan Rousso**

European Bank for Reconstruction and Development

Franklin Steves***

European Bank for Reconstruction and Development

Utku Teksoz****

Credit Suisse

* The World Bank. Email: mraiser{at}worldbank.org.

** European Bank for Reconstruction and Development. Email: roussoa{at}ebrd.com.

*** European Bank for Reconstruction and Development. Email: stevesf{at}ebrd.com.

**** Credit Suisse. Email: utku.teksoz{at}credit-suisse.com.

Using data from a large survey of firms across 26 transition economies, this article assesses the extent of trust in business relationships by measuring the level of prepayment demanded by suppliers, which we interpret as a measure of (dis)trust. We investigate a range of potential determinants of trust and find that trust among businesses is higher where confidence in third party enforcement through the legal system is higher. We also find that different types of business networks have a differential impact on the degree of trust between enterprises: networks based around family and friends help to build trust among firms, whereas networks based around enterprise insiders and government agencies appear to undermine trust. Our conclusion, based on the use of a unique multicountry enterprise data set, is that enterprises' room for maneuver in overcoming opportunism and distrust is much more limited by countrywide systemic factors than previously believed.


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