The evolution of honesty

A model of the cultural co-evolution of honesty and capital is analyzed. It is shown that the sign of the payoff differential between honest and dishonest types depends on the ratio of benefits that an employee gets from shirking to the resulting loss of revenue to the firm. If this ratio decreases with capital accumulation, then multiple equilibria in output and honesty are possible in the long run. Small changes in government corruptibility may have large long-run effects on per capita output and the extent of honesty. The honesty and human capital of workers will be positively correlated. (C) 2004 Elsevier B.V. All rights reserved.