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 is extremely efficient;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. If you have to buy it, you already have some doubts about what you’ve bought. 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. But they are not commodities for which trade on the open market is technically possible or even meaningful.