Trust in Markets
Sam Robbins and I attended a fascinating workshop yesterday at the OFT , titled Trust In Markets . It covered three areas: the nature of trust and its importance in economic exchange; trust and the law; and how trust is manifested in some specific industry sectors (online marketplaces and finance). I'm especially interested in trust as an economic concept. Clearly trust is an absolute prerequisite for many kinds of economic systems to even function. Any system in which transactions are not instantaneous; anything where the quality and nature of the product is not fully known in advance of purchase; and any financial system where credit is offered - will operate smoothly only if parties broadly trust each other. The crowning theory of microeconomics, the Arrow-Debreu theorem, can only work where futures markets are available - and futures markets can only work if parties know that their contracts will be honoured over time. Sometimes trust can be replaced, in the short term at leas...