Trust and In-Group Favoritism in a Culture of Crime

We use experiments in high schools in two neighborhoods in the metropolitan area of Palermo, Italy to experimentally support the argument that the historical informal institution of organized crime can undermine current institutions, even in religiously and ethnically homogeneous populations. Using trust and prisoner’s dilemma games, we found that students in a neighborhood with high Mafia involvement exhibit lower generalized trust and trustworthiness, but higher in-group favoritism, with punishment norms failing to resolve these deficits. Our study suggests that a culture of organized crime can affect adolescent norms and attitudes that might support a vicious cycle of in-group favoritism and crime that in turn hinders economic development. ∗We thank Ray Fisman, Lorenz Goette, Benedikt Herrmann, Matthias Sutter, Richard Zeckhauser, and participants at seminars at UCSD, UT Austin, and the conference of Swiss Economists Abroad. Funding was provided by the Don and Sybil Harrington Foundation and the McCombs School of Business at UT Austin. †Columbia University, Graduate School of Business, 3022 Broadway, New York, NY 10027, USA and NBER ‡Corresponding author. Washington University in St. Louis, Olin Business School, One Brookings Drive Box 1133, Saint Louis, MO 63130, USA §University of Navarra, IESE Business School, Avenida Pearson, 21, 08034 Barcelona, Spain ¶ETH Zurich, Weinbergstrasse 56/58, CH-8092 Zurich, Switzerland