In environments of higher trust the cost of transactions is lower, since less energy is required to protect oneself in an exchange. And resources that are freed from having to monitor transactions, can be allocated more productively. Also, any gains that are generated by innovation will be enjoyed by the innovator, rather than being appropriated by an untrustworthy individual. Therefore, as a result of high trust, people should have stronger incentives to innovate, and to invest in physical capital; the returns to human capital should also be higher. Social capital can increase income by opening up networks for trade, employment and help when in need. Indeed, the literature in this area confirms that people living in societies with higher trust, or people with more social capital, should have higher incomes.

My project will be concerned specifically with how “distance” in trust and social capital influences income. In other words, does trusting people who are close to you (i.e. family, friends) have a different effect than trusting those that are “further” from you, (i.e. people in your neighbourhood and strangers)? In terms of social capital, do friendships or relationships with people who are more like oneself have different effects on income than relationships with people that are less similar? I plan to determine whether variations in the “distance” in social relations and trust induce variations in income in different regions of Canada.

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