Exchange networks, markets and trust
Peer reviewed, Journal article
MetadataShow full item record
Original versionEkonomska Istrazivanja-Economic Research. 2019, 32 (1), 3918-3934. 10.1080/1331677X.2019.1677260
Network-based transactions are attractive as a system for economic exchange because they give network members greater protection against opportunism and exchange hazards compared to more anonymous market transactions. At the same time, networks restrict the possibilities to exploit economies of scale and other efficiency enhancing properties of markets. When the problem-solving capacity of networks do not make up for the losses generated by not trading with outsiders, trust is important to promote transactions among strangers in the anonymously market. This paper offers an economic analysis of this idea. With the help of a social evolutionary model, it is also demonstrated that mutual trust relations can survive in the anonymous market, even when there is a clear danger of opportunism, and the conventional mechanisms like repetitions and contracts are ruled out.
Open Access article distributed under the terms of the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.