Conference Paper Reciprocity: theories and facts, University of Milan-Bicocca, Milan, Italy, February 22-24, 2007
Re-evaluating the individual level causes of trust: a panel data analysis
Most empirical investigations of the antecedents of interpersonal trust are limited by their reliance on cross-sectional data. In this paper, high-quality repeated measures data are used to examine the effect of a range of explanatory variables on subsequent levels of interpersonal trust over a six year period. A fixed effects specification is used to control for the time-invariant characteristics of individuals that might spuriously link the explanatory variables to subsequent changes in trust. The results of the fixed effects model are contrasted with cross-sectional and random effects specifications, which do not control for unobserved individual heterogeneity. While the cross-sectional and random effects models show substantial effects of life events on subsequent levels of trust, the fixed effects specification shows only two significant explanatory variables. The only events found to predict a future increase in trust are obtaining a post-compulsory educational qualification, and improving one’s perception of the financial situation of the household. These results support the conclusion that existing correlational studies of the causes of interpersonal trust are likely to be affected by endogeneity bias.