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The Trust Paradox: A Survey of Economic Inquiries Into the Nature of Trust and Trustworthiness

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  • Harvey James

    (University of Missouri)

Abstract

This paper examines the concepts of trust and trustworthiness in the context of a one-sided variation of the prisoner's dilemma, and it evaluates four different categories of solutions to the PD problem: changing player preferences, enforcing explicit contracts, establishing implicit contracts, and repeating the interaction of the players. Because these solutions rely on the creation of incentives to induce cooperation, this paper articulates a paradox of trust in that if one trusts another because there are incentives for the other to be trustworthy, then the vulnerability to exploitation is removed which gives trust its very meaning. The paper explores the implications of trust when understood to exist at two levels -- one in which there are incentives to trust, and the other in which appropriate incentives are absent.

Suggested Citation

  • Harvey James, 2002. "The Trust Paradox: A Survey of Economic Inquiries Into the Nature of Trust and Trustworthiness," Microeconomics 0202001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpmi:0202001
    Note: Type of Document - Microsoft Word; prepared on IBM PC; to print on HP; pages: 28; figures: 4. Figures embedded as tables in document
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    More about this item

    Keywords

    Trust; social norms; transaction costs; rationality; prisoner's dilemma;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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