Emergence of Impersonal Exchange
30 Pages Posted: 19 Sep 2017 Last revised: 28 Aug 2018
Date Written: August 25, 2018
I study the trade-off between relational and impersonal exchanges. I model an economy where trade with strangers is voluntary, anonymous, one-shot, and self-interested. The conduct of traders is determined by the routines they follow, that evolutionarily compete and are sticky. I find that reliable impersonal exchange can emerge if 1) there is a high benefit from engaging with strangers (utility condition), and 2) a threshold adoption of standardized routines that reduced partiality in conduct (formalization condition). If the above conditions hold, impersonal exchanges supported by co-evolving generalized institutions can emerge. Cycles, where cheating and cautious relational exchange follows reliable impersonal exchange, can sustain impersonal exchanges.
Keywords: trust, routines, formalization, punctuated equilibrium, institutions, evolution, Europe
JEL Classification: A13, A14, C73, N93, Z13
Suggested Citation: Suggested Citation