The evolution of trust(worthiness) in the net

Werner Gueth () and Hartmut Kliemt
Authors registered in the RePEc Author Service: Werner Güth ()

Discussion Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: Due to the shadow of the future, exchange and the division of labor can be self-organizing on a small scale while it seems impossible for large interaction systems. The paper indicates that the survival conditions for trustworthiness can be met even in large interaction systems and large markets can emerge or be created without the helping hand of the state and its legal staff. Relying on an "indirect evolutionary approach" necessary conditions for the evolutionary stability of trustworthiness in large interaction systems in general are characterized. More specifically, the main results of our indirect evolutionary approach to trust suggest that trustworthiness must exist and be detectable if good conduct in trust-relationships is to survive. If so there is a niche for an organization offering the costly service of facilitating transactions and of keeping track of the conduct of participants on the net. We compare traits of an organizational design as suggested by economic reasoning with those that actually emerged in form of, for instance, eBay and ask whether eBay will increasingly have to "economize on virtue" although it so far could rely on its spontaneous provision.

Keywords: Comparative Institutional Analysis; Competition and Regulation (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-evo
Date: 2004-05

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