The Cost of Trust: A Pilot Study

Abstract

Trust is a fundamental precondition underpinning exchange and economic coordination but is costly to maintain. Given the potential for agents to enjoy zero-sum gains by opportunistically betraying the trust of exchanging counterparties, an edifice of occupational roles, organisational forms, and institutional practices have emerged in an effort to uphold trust. In simple terms, there exists a “cost of trust.” This paper provides numerical estimates of the cost of trust for the United States economy, based on an attribution of laborforce occupational data with varying degrees of trust-maintenance. Occupations represented in high cost-of-trust activities include managers, lawyers, and judges, tax professionals, accountants, and auditors. Overall, it is estimated that the cost of trust accounts for 35 percent of U.S. employment in 2010. The cost of trust has significant implications for the economic applicability of blockchain compared with conventional forms of ledger technology largely maintained by centralised third-party organizations.

Keywords

• blockchain
• measurement
• opportunism
• transaction costs
• trust