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Edited by Reinhard Bachmann and Akbar Zaheer
19 The economics of trust Mark Casson and Marina Della Giusta 1. Introduction Trust is widely recognized as an important component of a just society. It is less widely appreciated that trust also makes an important contribution to the economy. Trust not only improves the general quality of life, but improves productivity and economic performance too. Trust is an intangible asset. It is an important part of the invisible infrastructure, or social capital, of an economy (Putnam, 1993). The economic analysis of trust can inform a wide range of issues, which extend way beyond the traditional boundaries of economics as a subject area. This chapter presents an economic perspective on trust. It analyses trust from a rational action point of view, incorporating emotions into decision-making processes. It examines the costs and beneﬁts of trust, and shows how they can be compared with each other. It distinguishes diﬀerent forms of trust, and identiﬁes the particular forms that normally confer the greatest beneﬁt to the economy. It is sometimes suggested that economics has little to say about trust because issues relating to trust are excluded from the neoclassical general equilibrium (GE) model. This criticism is valid as far as it goes. It must be recognized, however, that the assumptions of the GE model are very strict compared with those which are required for rational action theory. It is rational action theory, rather than GE theory, which is the basis for this chapter. It is also useful to draw...
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