DP15343 Institutional fragility, breakdown of trust: a model of social unrest in Chile

Author(s): Robert Funk, Andrés Velasco
Publication Date: October 2020
Date Revised: October 2020
Keyword(s):
JEL(s):
Programme Areas: Public Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15343

We build a formal model of how trust in government institutions can arise -and also disappear overnight. At the heart of our argument is a two-way causation: government effectiveness helps engender trust, but governments that are widely trusted find it easier to be effective at providing the things -like high-quality public services- people want. External effects are also at work: the trust we place on a governmental institution matters, but other citizens' trust matters just as much. Two-way causation plus external effects yields multiple equilibria. Therefore our model can explain how a small exogenous shock can yield a big change in outcomes, as people change their behavior in ways that make government institutions less effective, triggering in turn an additional (and potentially sharp) decrease in trust. Self-fulfilling prophecies can also occur: once citizens come to believe that institutions are ineffectual, they change our behaviour in ways that ensure that institutions do become ineffectual and no longer trustworthy. We use the model to explore the recent experience of Chile, a middle-income country whose institutions, once viewed as strong and credible, are increasingly distrusted by angry citizens, who in 2019 took to the streets in massive and often violent demonstrations.