2. Motivation of the study and related literature

Since the early 1990s, a growing number of studies have identified social capital – with particular regard to its ‘cognitive’ dimension of social trust and its ‘structural’ aspect of prosocial behaviour – as a factor of economic and social development. Following Uphoff (Reference Uphoff, Dasgupta and Serageldin1999), it is possible to distinguish between structural and cognitive dimensions of social capital. Structural social capital deals with individuals’ behaviours and mainly takes the form of networks and associations that can be observed and measured through surveys. Cognitive social capital derives from individuals’ perceptions resulting in norms, values and beliefs that contribute to cooperation. These latter aspects involve subjective evaluations of the social environment. Both structural and cognitive dimensions include several sub-dimensions whose relationship with outcome variables in turn varies depending on the context and on the effect of other individual and local potentially influential factors (Degli Antoni, Reference Degli Antoni2009; Yamamura, Reference Yamamura2011). Trust and prosocial behaviour have been credited with reducing transaction costs, promoting the enforcement of contracts, facilitating credit at the level of individual investors and encouraging innovation and investment in human and physical capital (see among others Christoforou, Reference Christoforou2010; Knack and Keefer, Reference Knack and Keefer1997; Zak and Knack, Reference Zak and Knack2001).

Knack (Reference Knack2002: 171) argues that, ‘Where social mechanisms for the efficient resolution of prisoners’ dilemma and principal-agent games are weak or absent (i.e. where most potential pairs of economic transactors cannot trust each other) the private returns to predation increase while the private returns to production fall’. Individuals in higher-trust societies indeed spend less on protecting themselves from being exploited in economic transactions (Knack and Keefer, Reference Knack and Keefer1997).

Even if these views have been acknowledged in the economics debate only recently, it is worth noting that the concept of the social ‘embeddedness’ of the economic action is deeply rooted in the history of economic thought, and can also be found in the early work of classical economists. Typical code-words of the social capital literature (e.g. trust, altruism, sympathy and prosocial behaviour) can be found in the work of Adam Smith. In the Theory of Moral Sentiments, Smith (Reference Smith1759) argued that there were certain virtues, such as trust and a concern for fairness that, due to their role in prosocial behaviour and in the discouragement of cheating, were vital for the functioning of a market economy. Smith described trust and prosocial behaviour as critical foundations of the early beginnings of the market, allowing the development of trade and economic activities. According to North (Reference North1990: 54), ‘The inability of societies to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World’. In our view, it is reasonable to extend this point by arguing that not only the effective functioning of markets but also, to a larger extent, the resilience of the economic system, rely on those institutions (whether formal or informal) that foster the sharing and diffusion of feelings of trust and promote or preserve prosocial behaviour.

Disentangling the determinants of prosocial behaviour, and its relationship with trust, is a fundamental task for economic research, which assumes particular importance in the analysis of a process of state capacity building, where markets and formal public institutions are in the early stages of their development. From this point of view, the Palestinian society poses a puzzle because, despite a very low generalized trust, forms of prosocial behaviour remain functional within groups, helping to preserve minimum acceptable levels of well-being in a strongly unfavourable macroeconomic and political scenario. Prosocial behaviour, however, still seems to remain the exception between groups (or individuals belonging to different groups). One of the challenges of the process of state capacity building will be the preservation of in-group cohesion and well-being, and the development of policy actions to foster cooperative behaviours between groups and organizations.

Irwin (Reference Irwin, Thye and Lawler2009) argues that, in collectivist societies, prosocial behaviour is affected by institutional trust (intended as the belief that institutions effectively induce others to act in a trustworthy manner) rather than generalized trust as in individualist cultures (Brehm and Rahn, Reference Brehm and Rahn1997; Uslaner, Reference Uslaner2002; Yamagishi and Yamagishi, Reference Yamagishi and Yamagishi1994).

In collectivist cultures, relationships are guided by rigid distinctions between in-group and out-group. Individuals are tightly linked to their group, which protects them throughout their life span in exchange for unquestioning loyalty. People are expected to maintain harmony with the in-group through reciprocally cooperative interactions. To accomplish this, collectivism generally entails a strong emotional dependence on the group, which controls individual behaviour through social patterns and rules based on principles of tradition, conformity, benevolence and respect (Berigan and Irwin, Reference Berigan and Irwin2011; Irwin, Reference Irwin, Thye and Lawler2009; Triandis, Reference Triandis1995). Personal aspirations are often sacrificed to the pursuit of the group's welfare (Berigan and Irwin, Reference Berigan and Irwin2011; Hofstede, Reference Hofstede1991). Collectivist societies are naturally based on extended families or clans. Researchers typically agree that Western cultures are individualistic while Asian, Latin American and Middle Eastern cultures are collectivistic (Buda and Elsayed-Elkhouly, Reference Buda and Elsayed-Elkhouly1998; Hofstede, Reference Hofstede1991).

Yamagishi (Reference Yamagishi1998) find that, due to the importance individuals place on in-groups compared to out-groups, people from collectivist societies display markedly less trust in strangers than those from individualist societies (Yamagishi and Yamagishi, Reference Yamagishi and Yamagishi1994). Still Yamagishi (Reference Yamagishi1988) shows, that this lack of trust has a negative effect on prosocial behaviour toward strangers.

Irwin (Reference Irwin, Thye and Lawler2009) uses World Values Survey (WVS) data from 14 countries for the period 1981–2001 to assess the role of social and institutional trust in individuals’ prosocial behaviour. To test his hypotheses on the diverse roles of different types of trust, the author segments countries according to their respective levels of individualism or collectivism, as measured by the Hofstede-scale (Hofstede, Reference Hofstede1991). The empirical results suggest that individuals of collectivist societies rely mainly on public institutions to protect them from potential non-cooperative behaviours of out-group strangers. The effectiveness and fairness of public institutions in fact increase individuals’ confidence that cheating will be unfailingly punished and that unknown others will behave cooperatively.

Institutional trust, i.e. the confidence in the fairness and efficiency of public institutions, can be seen as the outcome of a complex, long-running and continuous interaction between the state and its citizens. This interaction is more likely to be cooperative in the presence of a certain degree of reciprocity between the parties: individuals trust institutions and avoid cheating only if they expect these institutions will act fairly and effectively.

The literature explains this mechanism through two main arguments.

The first argument, advanced by Kumlin and Rothstein (Reference Kumlin and Rothstein2005), stresses the idea that the positive perception that people have of public institutions increases people's confidence in the society and their trust in their fellow citizens. Drawing on cross-sectional data collected in 1999 in Western Sweden by the SOM Institute at Göteborg University, the authors found that social trust is higher among people with more confidence in public officials and the welfare state's institutions.

The second argument focuses on the idea that trustworthy institutions may reinforce prosocial behaviour by increasing citizens’ confidence that cheating actions will be discovered and effectively punished (Irwin, Reference Irwin, Thye and Lawler2009).

Several empirical studies have found a significant and positive correlation between the belief that strangers can be trusted and institutional trust – intended as trust in public institutions. It seems reasonable to argue that citizens who report high levels of confidence in public institutions may also be more confident that wrongdoers will be punished.

The arguments outlined above lead us to formulate the hypothesis that, in the collectivist society of Palestinian territories, institutional trust – defined as confidence in public institutions – may be a better predictor of prosocial behaviour than other forms of trust.

4. Empirical results

Before illustrating the SEM results, it is interesting to report some descriptive evidence. Table 2 ranks institutions based on the percentage of citizens reporting the highest trust score. 12.34% of our sample report having great trust in the police while only 3.89% of respondents report great confidence in political parties.

Table 2.

Ranking of the institutions according to trust

Family clans appear to be more popular than formal political institutions. 40.32% of Palestinians in our sample declare they have total trust in family clans. The highest level of trust in clans is more frequently observed among males (42.91%) than females (37.73%). The analysis of correlations indicates that trust in clans is significantly and positively correlated with the age of the respondents

Table 3 reports results of Chi-square tests between trust in different institutions, gender and active political participation. Compared to males, a smaller proportion of females report the highest level of confidence in the institutions representing the entire Territories such as the Parliament, the Government and the President, compared with male respondents. However, it also shows a smaller proportion of females do not trust these institutions at all.

Table 3.

Trust in political institutions by gender and political participation

*, **, *** indicate respectively 10%, 5% and 1% significance level of the Chi-squared test.

Tests also indicate a systematic and significant association between trust in institutions and political participation. The proportion of those who totally trust institutions is higher among the politically active.

A statistical analysis conducted through Chi-squared estimations indicates that Palestinians appear to be reluctant toward the ‘heaviest’ anti-social behaviours such as bribery and the purchase of stolen goods. In fact, about 90% of the sample (90.67% female 88.17% males) does not accept the purchase of stolen goods and approximately 96% do not accept bribery. Females are slightly more reluctant in justifying more to accept mild forms of anti-social behaviours than men: 78.26% of women do not accept absence from work without good reasons compared with 76.18% of men, and 87.45% of women do not agree with the lack of commitment to traffic regulations against 82.95% of men. Palestinians seem to be more tolerant towards abstention at elections, which is frowned upon by 48.6% of females and 48.25% of males. This proportion is slightly lower, 46.79%, among Palestinians with a higher-level of education.

The SEM analysis shows that our latent measure of prosocial attitudes is significantly and positively correlated with institutional trust, with trust in clans and with the importance attributed to the rule of law (see Table 4). Goodness-of-fit indicators are reported in Table 5. All the indicators of fit satisfy the respective threshold minimum and maximum limits.

Table 4.

GLS estimates of the structural equation model

* p < 0.1 ** p < 0.05 *** p < 0.01 Standard errors in parenthesis (sample size: 1,098 observations).

Table 5.

Measures of fit

The correlation between the main endogenous variable and our measure of knowledge-based trust is only slightly significant.

This result provides support to the hypothesis that, in collectivist societies, institutional trust plays a greater role than knowledge-based trust in providing incentives to avoid cheating and to behave prosocially. Knowledge-based trust, in fact, depends on experience and is strictly related to individuals’ involvement in small networks – such as family clans – acting as forms of ‘bonding social capital’ and encouraging members to behave cooperatively with their in-group peers and to distrust (and possibly exploit) outsiders. Institutional trust, on the other hand, can provide incentives to prosocial behaviour through two main channels.

Firstly, individuals will be less fearful of being cheated in interactions, especially transactions, if they are confident that institutions are capable of enforcing contracts, effectively resolving disputes, and possibly punishing offenders. This makes outsiders’ behaviour more predictable causing an overall reduction in uncertainty, at least in the perception of those who trust institutions and who are thereby encouraged to act cooperatively. Secondly, the cooperative behaviour of individuals who trust institutions may be a matter of reciprocity. As outlined in the brief review in Section 2, several studies show that citizens tend to act prosocially if they feel they are being fairly treated by public institutions.

In addition to these two explanations, citizens may also act prosocially because they are tied to public institutions by a ‘psychological contract’ based on mutual obligations. People who think that institutions are efficient and fair are likely to report high levels of institutional trust and may choose prosocial behaviour with the aim of fulfilling the psychological contract.

The concept of psychological contract refers to the mutual beliefs, perceptions and informal obligations between an employer and an employee (Rousseau, Reference Rousseau1989; Reference Rousseau2004). It is a common view in the organizational behaviour literature that employees tend to maximize their efforts and behave cooperatively only as far as their expectations of their employer's fairness are fulfilled (Aselage and Eisenberger, Reference Aselage and Eisenberger2003; Robinson and Rousseau, Reference Robinson and Rousseau1994). The notion of psychological contract can be extended to other principal-agent-like scenarios. Feld and Frey (Reference Feld and Frey2002) argue that the relationship between tax authorities and taxpayers involves an implicit or psychological contract. ‘The more strongly the political participation rights are developed, the more important this contract is, and the higher tax morale is. The existence and survival of this tax contract requires certain behaviour on the part of the two parties concerned’. This argument also relies on the concept of procedural justice: according to the authors, ‘The tax authorities must acknowledge and support the contract with the taxpayers by acting in a respectful way towards them, but also by preventing honest taxpayers from being exploited in the process’ (Feld and Frey, Reference Feld and Frey2002: 89). A number of subsequent empirical studies on tax morale report a positive impact on institutional trust on tax compliance across different contexts, such as Latin America (Torgler, Reference Torgler2005a), Switzerland (Torgler, Reference Torgler2005b) and Europe. In these cases, institutional trust refers to formal public organizations including confidence in government (Torgler and Schneider, Reference Torgler and Schneider2007), in the President (Torgler, Reference Torgler2005a; Reference Torgler2005b), in the Parliament (Martínez-Vázquez and Torgler, Reference Martínez-Vázquez and Torgler2009) and in the legal system (Torgler and Schneider, Reference Torgler and Schneider2007).

Whether the relationship involves an employer and his/her employees or the state and its citizens, the social exchange between the parties and the fulfilment of the contract essentially rely on trust. Our results support the view that, in collectivist societies, trust towards domestic political institutions plays a greater role than other forms of trust.

The reciprocity argument also entails that people who think that institutions are unfair and untrustworthy may choose anti-social behaviour as a reaction of the government's lack of respect of the psychological contract. Anti-sociality, on the other hand, may be seen as a way to cope with unfavourable social and economic conditions when public institutions fail to preserve civil rights and deliver public goods. For example, individuals often explain the act of bribing as the only route to obtaining access to basic public services, like receiving medical attention or issuing a certificate. Similarly, not paying taxes can be seen by individuals as an effort to sustain a subsistent level of living that public institutions fail to preserve.Footnote ⁸

In the Palestinian territories, in addition to formal public institutions, clans and international institutions should also be considered. International NGOs play a crucial role in the Palestinian economy. As reported by Lasensky (Reference Lasensky2004), Palestinians are probably the largest per capita recipients of international aid. Donors and international organizations provide fundamental support in the provision of important public services such as education and food security.

Our estimates, however, interestingly do not show a significant role of trust in international institutions in prosociality. Trust in clans, on the other hand, is found to be significantly and positively correlated with our latent measures of institutional trust. Clans are in fact one of the pillars of Palestinian community governance. In the Territories, clans (hamail) are family-based associations whose members do not necessarily need to be relatives. These associations usually group several extended families that might be connected through a common tribal father (Atran, Reference Atran1986; Crisis Group, 2007, Rothenberg, 1998/Reference Rothenberg1999). One of the functions of clans is to provide protection to its members in exchange for obligations and loyalty (Landinfo, 2008). Clans also contribute to the administration of justice. Along with the official court system, there is a traditional conflict resolution system based on a mediation committee whose members are chosen by clans. This system is more likely to be involved in cases of conflict where members of different clans are involved.

Empirical evidence indicates significant and positive correlations between trust in clan and trust in public and international institutions. These positive correlations recall the role of community governance discussed by Bowles and Gintis (Reference Bowles and Gintis2002). They indicate with the term ‘community governance’ a social organism or group able to provide a set of norms and rules facilitating the interaction of the members in a more cooperative manner (Bowels and Gintis, Reference Bowles and Gintis2002). One of the strengths of community governance is the access to private information not always available to public institutions. In this sense the community has greater access to the monitoring of the behaviour of its members and it also has the capability to punish individuals who behave against the established social norms. On the basis of their experimental findings, Bowles and Gintis (Reference Bowles and Gintis2002) stress the fact that community governance cannot represent a substitute institutional framework of the State but a complementary organism that may contribute to governance where the public institutions fail due to lack of information. This complementary synergy between community (clans) and public institutions is a crucial coping strategy for the institutional uncertainty represented by the Palestinian environment.