Social Capital and Human Development: Importance and Policy Implications

1. Social capital and Human Development: Measure and Policy Yann Algan (Sciences Po) Strategic Forum Rome, 22-23 September, 2014

2. Introduction Should we care about social capital ? Strong evidence of a relationship between trust / social capital and favorable outcomes: income, happiness, health, social cohesion. Do we have adequate measures ? Subjective surveys are crude and imperfect measures of cooperative behavior and social capital. What are the important component: Trust in others or institutions ? Social interactions? Weak or Strong social ties ? Public policy: If social capital is key, how could public policy build it ? Focus here on public institutions and education

3. Role of Trust / Social capital Foundations: Banfield (1958), Coleman (1990), Putnam (1993, 2000) Measures in terms of norms, networks, ties, group membership More restrictive (operational?) approach in economics: Guiso et al. (2010): Set of shared beliefs and values that help a group to overcome the free rider problem in the pursuit of socially valuable activities Measures with subjective surveys questions (GSS, WVS) Ex. Trust question: Generally speaking, would you say that most people can be trusted, or you cant be too careful in dealing with others Advantage: available for large samples I Should we care ?

4. Role of Trust / Social capital Early results on Growth: La Porta et al. (1997), Knack and Keefer (1997) Economic outcomes: Finance and Trade: Guiso et al (2004, 2009), Economic Development: Algan-Cahuc (2010) Firms organization and Innovation: Bloom et al (QJE, 2012) Institutional outcomes: Tabellini (2008), Aghion et al (2010) Happiness: Zak et al.(2004), Helliwell (2009) Inter-generational Mobility and Inequalities - Equality of opportunity: Chetty et al. (2014), Putnam et al. (2012) Social capital index: voter tun-out and participation in community organization - Early childhood intervention on social skills training: Algan et al. (2014)

5. Strong evidence of a relationship between trust and growth Arrow (1972): Virtually every commercial transaction has within itself an element of trust. It can be plausibly argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence."

6. The pitfalls of traditional measures Declarative surveys with questions like Trust raise many concerns - Polysemy and very vague questions: who are the others ? - What do we measure: Beliefs? Preferences? Risk aversion? - Impossible to distinguish various social attitudes: altruism, reciprocity, social image.. - Subjective declaration No Real Behavior of Cooperation! II Do we have good measures?

7. Lessons from Experimental economics Experimental games in the lab (Fehr, 2009) - Behavioral measure: An individual trusts if he or she voluntary places resources at the disposal of another party without any legal commitment from the latter, but with the expectation that the act of trust will pay off. Coleman (1990) and Fehr (2009) - Experimental tasks (ex. trust games) to elicit Behaviors - Various protocols to measure the variety of social preferences: reciprocity, fairness, altruism, beliefs versus preferences, risk aversion Main conclusions: Trust question is weakly correlated with true cooperative behavior Glaeser et al. (2000), Gambetta (2010) Pledge for looking at behaviors not just opinions ! But one main limit: in the lab without representative samples

8. Experimental game in the Lab : example Trust Game - 2 individuals: trustor and trustee - Investor/Trustor get endowment 10 $ - Investor can send any amount of the endowment to the trustee: (measure of trust) - Amount sent multiplied by scalar (ex 3) - Trustee can send back any amount: (measure of trustworthiness)

9. Program for International Assessment of Social Attitudes SociaLab in the field: observe the level of trust and cooperation among citizens Example: Analysis of cooperation within Wikipedia or OSS: Algan et al. (2014) Different scenario of interactions to elicit trust towards specific groups and trust in government in the population Comparison of cooperative behaviors at the very local level or across countries with representative internet panels + Survey questions Proposition

10. Figure: The instruction screen of the Public Goods game

11. Figure: Earnings calculator for the Public Goods and Trust games (i) Public Goods game (ii) Trust game

13. III CAN PUBLIC POLICY BOOST SOCIAL CAPITAL ? But if trust / social capital is key: which policy could boost them? Two main messages: Public policy should care about social capital How can we improve current policy evaluation ?

14. Why public policy should care about social capital ? Growing evidence of a relationship between institutions and social capital: ex. transparency Efficiency/Fairness of institutions depend on social capital Ex.: negative impact of deregulation on social capital in transition economies : Aghion et al (2010) Propositions: Measure social capital prior to policy decision Measure the impact of policy reforms on social capital with focus groups Specific care in the fairness of the policy design: Ex. taxes (Minnesotta experiment)

16. The Side effects of Deregulation in Low Social capital environment: ex of Transition Economies

20. Which policy could boost social capital ? Here: Role of Education Strong relationship between teaching practices and social capital across countries, schools, students: Algan al. (2014) Opposition between horizontal and vertical practices Proposition: include teaching practices and social skills questions and experiments in PISA

21. Teaching practices and trust

22. APPENDIX Developing Mental Models in Early Childhood Ex.: Montreal Longitudinal Study

28. Channel of Impact during Adolescence : Switch in mental model: Trust and Perspective taking