The Cost of Trust: A Pilot Study
28 Pages Posted: 9 Aug 2018
Date Written: July 24, 2018
Trust is a fundamental precondition underpinning exchange and economic coordination between heterogeneous agents, but is costly to maintain. Given the potential for agents to enjoy zero-sum gains by opportunistically betraying the trust of exchanging counterparties, an edifice of occupational roles, organisational forms and institutional practices have emerged in an effort to uphold trustworthy behaviour and conduct. In simple terms, there exists a “cost of trust” and this cost is non-trivial for a highly specialised economy operating at an increasingly global scale. This paper provides numerical estimates of the cost of trust for the United States economy, based on an attribution of labour force occupational data with varying degrees of trust-maintenance. Occupations which are represented in high cost-of-trust activities include managers, lawyers and judges, tax professionals, accountants and auditors. Overall, it is estimated that the cost of trust accounts for 35 per cent of U.S. employment in 2010. The cost of trust has significant implications for the economic applicability of distributed ledger technologies, such as blockchain, compared with conventional forms of ledger technology largely maintained by centralised third-party organisations.
Keywords: blockchain, measurement, opportunism, transaction costs, trust
JEL Classification: D02, J21, K42, O33, Z13
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