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

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Author Info
Harvey James (University of Missouri)

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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.

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Publisher Info
Paper provided by EconWPA in its series Microeconomics with number 0202001.

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Length: 28 pages
Date of creation: 04 Feb 2002
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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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Web page: http://129.3.20.41

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Related research
Keywords: Trust; social norms; transaction costs; rationality; prisoner's dilemma;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D64 - Microeconomics - - Welfare Economics - - - Altruism

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  1. Turvey, Calum G. & Kong, Rong, 2008. "Vulnerability, Trust and Microcredit: The Case of China?s Rural Poor," Working Papers RP2008/52, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  2. Martti Vihanto, 2007. "Endogenous preferences, emotions, and the breaking of social capital into economics," Discussion Papers 18, Aboa Centre for Economics. [Downloadable!]
  3. Christian Lukas & Jens Robert Schöndube, 2008. "Trust and Adaptive Learning in Implicit Contracts," FEMM Working Papers 08017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management. [Downloadable!]
  4. Fali Huang, 2003. "Social Trust, Cooperation, and Human Capital," Working Papers 01-2004, Singapore Management University, School of Economics, revised Jan 2004. [Downloadable!]
    Other versions:
  5. Luigi Mittone & Matteo Ploner, 2009. "Social Effects in a Multi-Agent Investment Game. An Experimental Analysis," CEEL Working Papers 0905, Computable and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia. [Downloadable!]
    Other versions:
  6. Rosanas, Jose M., 2004. "Bounded rationality, value systems and time-inconsistency of preferences as rational foundations for the concept of trust," IESE Research Papers D/567, IESE Business School. [Downloadable!]
  7. M. Vittoria Levati & Matteo Ploner & Werner Güth, 2005. "The impact of payoff interdependence on trust and trustworthiness," Papers on Strategic Interaction 2005-19, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
  8. Avner Ben-Ner & Louis Putterman, . "Trust, Communication and Contracts: An Experiment," Working Papers 0206, Industrial Relations Center, University of Minnesota (Twin Cities Campus). [Downloadable!]
    Other versions:
  9. Vranceanu, Radu, 2005. "The Ethical Dimension of Economic Choices," ESSEC Working Papers DR 05001, ESSEC Research Center, ESSEC Business School. [Downloadable!]
  10. Arne Wiig, 2004. "Risk and disintermediation in tourism," CMI Working Papers WP 2004: 6, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  11. Harvey James, 2002. "On the Reliability of Trusting," Microeconomics 0202002, EconWPA. [Downloadable!]
  12. Bellemare, C. & Kroger, S., 2003. "On representative trust," Discussion Paper 47, Tilburg University, Center for Economic Research. [Downloadable!]
  13. Fali Huang, 2007. "Building Social Trust: A Human Capital Approach," Working Papers 08-2007, Singapore Management University, School of Economics. [Downloadable!]
    Other versions:
  14. Steffen Huck & Jean-Robert Tyran, 2004. "Reciprocity, Social Ties, and Competition in Markets for Experience Goods," Discussion Papers 04-12, University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  15. Kvaløy, Ola & Olsen, Trond E., 2007. "Relative Performance Evaluation, Agent Hold-Up and Firm Organization," Discussion Papers 2007/26, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
    Other versions:
  16. James, Harvey, 2002. "The Effect Of Trust On Public Support For Biotechnology: Evidence From The U.S. Biotechnology Study, 1997-1998," Working Papers 26041, University of Missouri Columbia, Department of Agricultural Economics. [Downloadable!]
    Other versions:
  17. Werner Güth & M. Vittoria Levati & Matteo Ploner, 2007. "Social identity and trust - An experimental investigation," Papers on Strategic Interaction 2006-41, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
  18. Matteo Ploner, 2007. "Personal Autonomy in Trust-Based Interactions. An Experimental Analysis," CEEL Working Papers 0701, Computable and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia. [Downloadable!]
  19. Oliver Gürtler, 2006. "Implicit Contracts: Two Different Approaches," Discussion Papers 110, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  20. James, Harvey S., Jr. & Sykuta, Michael E., 2004. "Farmer Trust In Agricultural Cooperatives: Evidence From Missouri Corn And Soybean Producers," 2004 Annual meeting, August 1-4, Denver, CO 19974, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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