Trust and Transaction Costs

Abstract

In this paper, the influence of interfirm trust relationships on the level of transaction costs of economic exchanges is analysed. In many cases, it is argued, trust appears to be either neutral in respect of transaction costs or even augmenting them. The lowering of transaction costs can be explained by virtue of different attendant institutions, like reputation or contract securities, rather than owing to trust per se. Mutual correlation between trust and transaction costs, including knowledge accumulation in interfirm alliances, property rights protection within joint innovation projects and social capital formation in business groups, is considered.