The role of public, relational, and organizational trust in economic affairs

The Situation Trust not only saves on transaction costs, it also increases the overall efficiency of a system. It enables the production of more goods (or more of what a group values, if we focus on so-called public goods) at less cost. But trust cannot be simply produced on demand and it cannot be bought or sold on the open market. The lack of mutual trust represents a loss: beyond the specific economic loss at the transactional level, there is a contribution to the deterioration in the effective functioning of the political system and other collective undertakings. Key Questions To what extent does a lack of public trust weaken the foundations of the institutions that provide for the smooth functioning of society? What impact do public trust, relational trust, and organizational trust have on the economy? New Knowledge When two partner firms are very familiar with one another, organizational culture is a critical factor in trustworthiness. Contractual safeguards become more significant when the reputation of the alliance firm is less favorable. Societies are evolving away from trust relationships toward externally regulated behavior. This is in part due to changes in the ways in which people relate to one another. People have gradually become less reliant on the “thick” relations of trust and normative control typical of small communities, and have come to depend on larger networks of “thin” relations of trust and cooperation that typify relationships spread out over geographic space.