Whom Farmers Trust the Most? Institutional Trust and Economic Decision Makings : Evidence From Rural Ethiopia

Several cross-country studies show that trust is conducive to economic growth. One possible channel through which trust affects economic growth is trust in institutions. However, the issue of institutional trust and its effect on economic decision makings has been given less attention in the literature. This study aims to fill this gap by exploring farmers' trust in different local government institutions and relating it to their economic decision makings. I use a novel experimental trust game to measure farm households' trust in institutions. I find that, on average, farm households reveal low trust in institutions. While farm households trust the health institution the most, they exhibit the least trust in microfinance institutions. Moreover, trust in institutions is significantly correlated with farm households' economic decision makings. Institutional trust positively and significantly affects agricultural decisions such as the adoption of agricultural technologies and agricultural innovations. Trust in institutions also significantly affects farmers' investment in health. Farmers with high trust in health extension services are more likely to purchase health insurance. Although weak, trust in financial institutions is also related to financial behaviors (saving and credit)