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, organizational 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 labor force 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 per cent 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 centralized third-party organizations.

Blockchain and Tourism

“…The underlying driver for this development is a shift in the confidence of participants from trust in organizations and that emerging out of personal relationships to trust in the platform and, if applicable, its provider(s) (Calvaresi et al 2019). The total cost of trust for the US economy, based on an activity assessment of various occupations, was estimated to be as high as 35 per cent of the total employment (Davidson et al 2018), which illustrates the economic potential of a technology that strives to create "trustless systems. "…”

Proof of Work as a Three-Sided Market

“…In the economic literature trust as a precondition for exchange and trade has generally been subsumed into the general category of transaction costs. Davidson et al (2018b) argue, however, that while there is some overlap between trust and generic transaction costs, the two concepts can and should be considered separately. Non-economists such as Schneier (2012), Sundararajan (2016), and Werbach (2018) have provided argument and evidence pointing to the importance of trust in a market economy wellbeyond the notion of trust simply constituting yet another transaction cost.…”

Crypto altruism: Applying blockchain to charitable and humanitarian activities

“…However, it is important to recognize that the design and enforcement of any computational, institutional, or other strategy to increase trust (and decrease distrust) is not costless. Accordingly, this paper outlines the potential implications of blockchain for charitable and humanitarian trust using the "cost of trust" framework, introduced in the blockchain economics literature by Davidson, Novak, and Potts (2018). As will be illustrated, the use of this framework allows researchers to provide a nuanced assessment of blockchain's applicability to charity and humanitarianism, including recognition of benefits, as well as tradeoffs and risks, in both operational and institutional contexts.…”