Corruption, Norm Violation and Decay in Social Capital

The paper studies the interplay between corruption and social trust, using data from a lab experiment. Subjects play either a harassment bribery game or a strategically identical but differently framed ultimatum game, followed by a trust game. In the second phase, the trust game is followed by the bribery game. We also use the design to study the association between behavior in trust game and response to the World Value Survey trust question. Our results show that a) there is a negative spillover effect of corruption on trust, but not vice-versa, and the effect increases with a decrease in social appropriateness norm of the bribe demand; b) lower trust in the bribery game treatment is explained by lower expected return on trust; c) surprisingly, for both the treatments, social appropriateness norm violation engenders the decay in trust through its adverse effect on belief about trustworthiness; d) the WVS-trust question captures expectations about others’ trustworthiness, however, response to the WVS-trust is stable while behavior in the trust game is susceptible to short term fluctuations.