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Social Capital and Loan Cost: The Role of Interpersonal Trust

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  • Leonardo Becchetti

    (Department of Economics and Finance, University of Rome Tor Vergata, 00133 Roma, Italy
    School of Finance and Management, SOAS University of London, London WC1H 0XG, UK)

  • Stefano Manfredonia

    (Department of Economics and Finance, University of Rome Tor Vergata, 00133 Roma, Italy)

  • Fabio Pisani

    (Department of Economics and Finance, University of Rome Tor Vergata, 00133 Roma, Italy)

Abstract

We argue that social dilemmas structured as investment trust games are a dominant feature in social and economic life due to asymmetric information, incomplete contracts and non-overlapping competencies that are typical characteristics of business relationships. We therefore consider that borrowers living in geographical areas with higher interpersonal trust are more likely to overcome the coordination failures typical of this kind of social dilemmas, thereby creating higher economic value and reducing the risk of their economic activity. Our empirical findings support this hypothesis, showing that lenders charge significantly lower loan costs on borrowers living in areas characterized by higher interpersonal trust.

Suggested Citation

  • Leonardo Becchetti & Stefano Manfredonia & Fabio Pisani, 2022. "Social Capital and Loan Cost: The Role of Interpersonal Trust," Sustainability, MDPI, vol. 14(3), pages 1-15, January.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:3:p:1238-:d:730850
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    References listed on IDEAS

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    3. Ernst Fehr, 2009. "On The Economics and Biology of Trust," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 235-266, 04-05.
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    6. Iris Bohnet & Fiona Greig & Benedikt Herrmann & Richard Zeckhauser, 2008. "Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States," American Economic Review, American Economic Association, vol. 98(1), pages 294-310, March.
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    Cited by:

    1. Xuan-Lam Duong & Shu-Yi Liaw, 2022. "Online Interpersonal Relationships and Data Ownership Awareness Mediate the Relationship between Perceived Benefits and Problematic Internet Shopping," Sustainability, MDPI, vol. 14(6), pages 1-17, March.

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