Trust and Economic Organization

Abstract

During the past four decades, the role of trust in the economy has gained increasing attention beginning with economist Kenneth Arrow's contention that trust is the lubricant of the economy increasing efficiency and saving on transactions costs. It is also important in the political realm, facilitating collective action. Robert Putnam, among others, contends that trust, as one component of social capital, is a key factor in the vibrancy of civil society. Both economists and social psychologists have used game theory and experimental methods to investigate trust and reciprocity. A key question remains How is trust maintained in the absence of monitoring, especially in the case of principal–agent relations? Economic historians and anthropologists have identified several mechanisms that serve to facilitate trust‐based interactions across space and time. In the context of organizations and management, a wide range of trust‐related issues have been explored, especially in the wake of Enron (a company no longer in existence) and the more recent failure of investment banks and other large financial institutions. At the macro‐level, Francis Fukuyama, among others, has explored the cultural underpinnings of differences in levels of general trust in various societies and its consequences for economic development. More recently, trust has become a central theme in the study of the sharing economy in which an astonishing array of goods and services is now offered by auction or exchange on the Internet. Detailed research on such enterprises (e.g., eBay, CouchSurfing, and AirBnB) is now possible through the development of computational social science.