Lecture 9

Question 1

Economic function of trust

Answer 1

Reducing the transaction costs and the need for monitoring

Question 2

Costs ex ante: in connection with selection and information gathering

Answer 2

• Search costs (associated with the identification of potential trading partners)
• Contracting costs (associated with negotiating and writing an agreement)

Question 3

Costs ex post: in connection with measurement and enforcement

Answer 3

• Monitoring costs (associated with monitoring the execution of the agreement and ensuring each party lives up to the promises specified in the agreement)
• Enforcement costs (associated with ex post bargaining and sanctioning parties that do not live up to the agreement)

Question 4

3 empirical measures of trust

Answer 4

1. Surveys
2. Experimental games in the lab
3. Experimental games in the field (paired with surveys)

Question 5

Surveyquestions to measure trust

Answer 5

1. Generalized trust question
2. Fair question
3. Help question

Question 6

3 dynamics of trust

Answer 6

1. Climate
2. History
3. Inherited trust