The Economics of Trust

Neil M. Kay
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Neil M. Kay: University of Strathclyde

Chapter 5 in The Boundaries of the Firm, 1999, pp 93-109 from Palgrave Macmillan

Abstract: Abstract Anyone who writes a two-volume series sub-titled The Economics of Trust, as Mark Casson has done, must face up to something akin to what might be described as ‘Yossarian’s Dilemma’ — except that for Yossarian in Catch-22 there is really no dilemma since there is only one rational choice. He is Homo Economicus in an n-person Prisoner’s Dilemma. If everybody obeys, his best strategy is to defect and free-ride on others’ sacrifices. If nobody obeys, his best strategy is still to defect and protect himself. Whatever everybody else’s strategy is, Yossarian’s best strategy is to defect. In game-theoretic terms, defection is a dominant strategy for Yossarian, as it would be for all other rational participants with his payoff function. Major is aware that individual defection aggregates as collective defection or anarchy, and that this poses certain problems for collective well-being. However, this does not shake the logic of Yossarian’s position, but merely serves to extend and reinforce it. Even if it was pointed out to Yossarian that everybody’s chances of collective survival would be greater if they all fought together rather than if they all chickened out, this would not alter the logic of Yossarian’s position. Whatever everybody else does, his best strategy would still be to defect.3

Keywords: Social Trust; Free Rider; International Joint Venture; Reduce Transaction Cost; Exit Cost (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1007/978-1-349-14645-1_5

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