Implications for Economic Policy
Edited by John Finch and Magali Orillard
Chapter 7: Trust and Transaction Costs
7. Trust and transaction costs Alexander Lascaux INTRODUCTION Over recent decades, debates about the role of trust in creating costefﬁcient structures of economic exchange have been at the forefront of research in economic sociology, management science and organization theory. Speciﬁcally, both academics and practitioners have been interested in examining the effect of developing trustful attitudes, treated as a conﬁdent expectation that no serious harm would come from a partner’s quarter, despite one’s vulnerability to his or her malevolent intentions, on altering the level of transaction costs, that is, all types of costs associated with monitoring, adjusting and enforcing contractual relations with the other parties. Traditionally, most approaches from economics and management theory regard trust as a means of lowering transaction costs. Both academic literature (Hill 1990; Nooteboom et al. 1997) and textbooks (Milgrom and Roberts 1992; Kasper and Streit 1998) adhere to the opinion that a high level of trust helps ﬁrms and individual agents limit the threats of opportunism, cope with uncertainty and reduce speciﬁcation and monitoring costs inevitable in the incomplete contracts. Trust is believed to stimulate frequent and dense information exchanges, prevent unnecessary expenses pertaining to property rights protection and contribute to the adjustment of divergent interests of the contract parties. Unfortunately, in a situation of inherent complexity of economic interrelationships, these assumptions appear to be oversimpliﬁed. The notion of trust allegedly having a positive impact on the reduction in transaction costs seems to be at variance with numerous observations both from...
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