Dear Economist

Can you put a price on being nice?

Dear Economist,
There seem to be economic benefits for a society where people are law-abiding, trustworthy, caring and generally nice. You get less cheating, and where you feel you can trust people, you can enter into business dealings with more confidence. Has anyone calculated the economic value of people being nice? And could a government invest in people being nice? If so, what would be the return on that investment?
James Atkins

Dear James,

Even economists would recognise that niceness is valuable for its own sake. But you are right, it is also good for the economy. Steve Knack, an economist who specialises in governance, trust and social capital (translation: niceness) once told me that, taking a broad definition of trust, it would explain the difference between the per capita income of the US and Somalia. That is, niceness and its cousins are worth about 99.5 per cent of US national income.

There are limits, though. When people trust each other, they become vulnerable to cheats. A recent paper by economists Jeff Butler, Paola Giuliano and Luigi Guiso finds that for an individual, there’s an optimal level of trust in others. Too little and you’re over-conservative, missing opportunities; too much and you get screwed. The effects are large, similar to the difference between going to college or not.

It is not clear how a government might encourage people to be nicer, but one famous economic study does suggest a way: Ray Fisman and Ted Miguel looked at the behaviour of diplomats in New York. The Scandinavians committed 12 unpaid parking violations between them; diplomats from Chad and Bangladesh notched up over 2,500. But when the city was given more power to punish offenders, all the diplomats cleaned up their act – niceness is best supported by legal incentives.

Also published at ft.com.

19th of December, 2009Dear Economist • Comments off