Edited by Reinhard Bachmann and Akbar Zaheer
Chapter 18: Trust and Markets
Jens Beckert1 Markets are the core institution of capitalism. Without markets, no system of division of labor, even remotely as sophisticated as the one established today, could have developed. Without markets, no system of competition could have emerged that enforces the eﬃcient production of goods and provision of services. Without markets, the distribution of material resources would need to be regulated by non-economic criteria. While these consequences of market exchange have been widely acknowledged, it is much less well understood under what conditions markets can come into existence and thrive. One precondition is the supply of products that are in demand. Moreover, markets need at least some institutional safeguards that protect sellers and buyers from fraud, violence and free-riding. Economic sociologists (Granovetter 1985; Fligstein 2001) and institutional economists (Williamson 1975) have explored the institutional preconditions of markets in recent years, including the roles of state regulation, hierarchical organization, social networks and culturally anchored scripts and routines. In this chapter I argue that the availability of exchangeable products and institutional provisions is a necessary but insuﬃcient condition for the existence of markets. A further constitutive element of most markets is trust between the exchange partners. By trust I refer to each exchange partner’s expectation2 that his one-sided advance concession in a transaction will not be exploited by the other person through defection, although defection would generate extra proﬁt for him. Although trust (and mistrust) is a universal aspect of social relations, it only becomes an analytically important issue...
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