Perspectives from New Institutional Economics
Edited by Claude Ménard
Chapter 12: When good defenses make good neighbours: a transaction cost approach to trust, the absence of trust distrust
12. When good defenses make good neighbors: a transaction cost approach to trust, the absence of trust and distrust Margaret Levi* INTRODUCTION How destructive is the absence of trust or even active distrust to the way economies, governments and organizations operate? Do we really need trust and social capital to improve exchange relationships or signiﬁcant social and political interactions? A long list of distinguished economists, political economists and social theorists have answered the second question with a resounding, ‘Yes!’. But until we understand what damage distrust does and in what kinds of situations, it is preliminary to posit trust or social capital as the solutions. The ﬁrst step, then, is the development of an empirical model of distrust and trust that speciﬁes what is meant by these concepts, how to observe them and how to measure them. With such a model in hand, it might then be possible to clarify when distrust causes harm and when the creation of trust is the best means to alleviate that harm. The arguments of this chapter are simple. First, distrust may be the problem, but trust is not always the solution. Second, distrust may not always be a problem and may in fact be the source of the institutional arrangements that permit us to cooperate and exchange. This leads to the initial claim that the starting point of analysis should be distrust, or at least lack of trust, and not trust. The next step is exploration of the ways in...
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