Complexity and the Economy
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Complexity and the Economy

Implications for Economic Policy

Edited by John Finch and Magali Orillard

The authors examine the causes and consequences of complexity among the broadly economic phenomena of firms, industries and socio-economic policy. The book makes a valuable contribution to the increasingly prominent subject of complexity, especially for those whose interests include evolutionary, behavioural, political and social approaches to understanding economics and economic phenomena.
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Chapter 7: Trust and Transaction Costs

Alexander Lascaux

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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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