The Cultural Transmission of Trust and Trustworthiness

We consider the cultural transmission of trust and trustworthiness in a trust game with spatial matching a la Tabellini. Players are assumed to enjoy psychological benefits from good conducts. The equilibrium probability that an investor trusts a receiver is a monotonically decreasing function of social distance, and the one that the receiver behaves in a trustworthy manner is non-monotonic. Parents with imperfect empathy transmit their own values to their children through education, and the ratio of individuals with good values globally converges to a stationary point with heterogeneity if educational costs are sufficiently small. Trust and trustworthiness are infl uenced by institutions in different ways. A better "intermediate" enforcement crowds out trust and crowds in trustworthiness.