Law and Trust

Abstract

This article explores the significance of the law for enhancing social capital and the trust necessary for economic transactions. Trust is a complicated concept, which contains both rational cognitive and emotional affective aspects. While the law has been criticized by many social scientific researchers for undermining affective trust, this theory is a misguided one. Relying on purely private trust is limited, especially in a relatively complex economy. By providing assurances of contract performance, the law can help create trustworthy behavior, which in turn can increase both cognitive and affective societal trust. After examining the existing literature on the association of law and trust, I conduct cross-country research showing that the concepts are not antagonistic but tend to go together. Moreover, the use of the law can produce a better and broader, less xenophobic trust in a society.