Abstract
Trust plays a critical role in determining social welfare in the digital economy and has significant socioeconomic implications. To investigate the relationship between trust and social welfare in this context, we developed a social welfare function that accurately quantifies the positive impact of the digital economy. Employing a Markov analysis framework, we modelled trust as a variable that evolves based on the agent's interactions with the system, characterizing the system's dynamic behavior as a series of probabilistic transitions between states. We ran multiple simulations to gather a significant sample of possible outcomes and analyzed the statistical correlation between trust and social welfare. We used the time it takes for the digital economy to converge towards the non-digital economy as a metric to compare the performance of the separate economies. We controlled for other factors influencing social welfare, such as the number of transactions and market competition levels. We compared the actual outcomes of the simulation study with our theoretical predictions. Results indicate a significant impact of trust in maximizing social welfare by achieving a steady state in fewer iterations for a developed digital economy. The socioeconomic benefits of trust are more visible in a digital than in a non-digital economy. Technological progress or innovation is crucial to attaining responsible consumption and production patterns. The digital economy's sustainability hinges on trust, which policymakers must prioritize in light of trust erosion. An effective and inclusive approach, taking into consideration cultural and socioeconomic factors, is imperative to foster increased public trust in institutions and government. Policymakers should strategically prioritize measures such as bolstering data privacy, promoting digital literacy, and formulating robust legal frameworks that facilitate trust-building. The cultivation of mutual trust among all stakeholders, including the state, corporations, government, and individuals, is essential for the creation of a more sustainable and equitable digital economy that maximizes social welfare.
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Notes
Online marketplaces like Amazon and eBay rely heavily on trust. These platforms allow individuals and businesses to buy and sell goods and services confidently, knowing that their transactions will be secure and they will receive what they have paid. It leads to a more efficient and productive economy and greater consumer access to goods and services. Another example is using digital identity systems, such as blockchain-based systems.
Social welfare can be defined in the digital economy as the overall well-being of individuals, communities, and societies within the context of the digital realm. In the digital economy, social welfare is influenced by a variety of factors, including but not limited to access to digital technology, digital literacy, privacy and security, and trust in digital platforms and institutions. According to a report by the Organization for Economic Cooperation and Development (OECD), social welfare in the digital economy can be measured by a combination of economic, social, and environmental factors, including income and employment, education and skills, health and well-being, civic engagement and social connections, and environmental quality (OECD 2020).
Consumers are more inclined to buy from eco-friendly companies that use sustainable methods if the marketplace they are shopping in is one they trust.
(Sen 1980; 2008) influential paper critiques traditional utilitarian approaches to social welfare and introduces the capability approach, emphasizing the importance of individuals' capabilities and functionings. (Pigou 2017) work is a influential in welfare economics, discussing the role of the state in correcting market failures and promoting social welfare.
In this study, we have employed MATLAB for the creation of tables and graphs. MATLAB's robust capabilities and flexibility allowed for effective visualization of the data and derivation of meaningful insights.
This study informs digital transformation initiatives, highlighting the necessity of trustworthy digital infrastructure, particularly relevant for countries like Pakistan embarking on digitalization journeys. The research acknowledges trust's role in addressing socioeconomic disparities, empowering policymakers to design interventions for equitable resource distribution. It further emphasizes trust in fostering collaboration and innovation for inclusive economic growth, helping policymakers design trust-building economic policies.
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Shah, S.S., Shah, S.A.H. Trust as a determinant of social welfare in the digital economy. Soc. Netw. Anal. Min. 14, 79 (2024). https://doi.org/10.1007/s13278-024-01238-5
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DOI: https://doi.org/10.1007/s13278-024-01238-5