On Some Economic Aspects of a Fragile Input: Trust

Abstract

Kenneth Arrow's The Limits of Organization(1974, p. 23) contains the following statement about trust (my italics): Consider what is thought of as a higher or more elusive value than pollution or roads: trust among people. Now trust has a very important pragmatic value, if nothing else. Trust is an important lubricant of a social system: ;it saves a lot of trouble to have a fair degree of reliance on other people's word. Unfortunately this is not a commodity which can be bought very easily. . Trust and similar values, loyalty or truth-telling, are examples of what the economist would call 'externalities'. They are goods, they are commodities; they have real, practical, economic value; they increase the efficiency of the system, enable you to produce more goods or more of whatever values you hold in high esteem.