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Cambridge Journal of Economics Advance Access originally published online on October 4, 2007
Cambridge Journal of Economics 2008 32(1):65-81; doi:10.1093/cje/bem019
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© The Author 2007. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

A theory of trust based systems of intermediation

Marina Della Giusta*

* University of Reading

Address for correspondence: Department of Economics, University of Reading, Reading, UK; email: m.dellagiusta{at}rdg.ac.uk

Recent studies have analysed the economic benefits of belonging to high-trust networks and the biological foundations of individual trust, but much scepticism remains regarding the precise role of trust in economic transactions, as well as gaps between micro and macro concepts of trust. This paper links individual and institutional trust by modelling the costs associated with accessing market, law and trust-based intermediation systems, and identifies the conditions under which one of the three systems may be more advantageous for rational actors, and thus more likely to emerge. The discussion concentrates on examples drawn from development policy to illustrate how the three systems operate together, and how the failing of the trust system affects the legal and market systems.

Key Words: Trust • Coordination systems • Development

JEL classifications: O17, Z13, P37, P48

Manuscript received February 14, 2006; final version received November 10, 2006.


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