Buchanan Hall (formerly Mason Hall), D180
April 14, 2016, 04:00 PM to 01:00 PM
Trust is an important concept for understanding economic, political and social activities and is correlated with various measures of economic performance. As an expansion of the market is necessary for nations to prosper (Smith 1776), understanding how trust can be fostered in formal institutions such as markets appear crucial for economic development. This dissertation examines how markets can foster trust and trustworthiness and how social relationships based on trust and trustworthiness can emerge from market activities.
Critics of markets have often asserted that markets undermine morality and that market dealings are unfair and corrupting. In their perspective, the expansion of the market and market values taint the nature of the goods being exchanged and the relationships between the exchanging parties. My first chapter provides philosophical and evidence-based arguments for the market as a social space in which people could exercise their principles and act with integrity. After all, meaningful social bonds characterized by trust and trustworthiness can and do develop in market settings. The market depends on and promotes trust and trustworthiness as well as fairness and reciprocity and these values play important roles in successful market exchanges.
My second chapter experimentally investigates how social relationships characterized by trust and reciprocity can be established through market transactions and if these relations affect subsequent behavior in non-market settings. I use a novel two-task design in which subjects are first placed in a market setting followed by a trust setting. A key feature of this market is that trade agreements are not enforced and that the subjects must deliberately execute them. I find that trusting relationships do form in this market. Despite the high defection rate (57%), subjects show more trust towards trading partners who have unquestionably demonstrated their trustworthiness. More specifically, in the trust game, senders and responders transfer 50% more tokens to counterparts with whom they share relationships characterized by successful market trades compared to those with whom they share relationships characterized by defected market trades.
My third chapter paper builds on work within Austrian economics concerning the market as a discovery process (Hayek 1968; Lavoie 1985) and on the market as a social space (Storr 2008; Chamlee-Wright and Storr 2015). Using evidence from the experimental and Austrian economic literature, I argue that the market is a space where people learn about who they can trust and about others’ trustworthiness through market interactions.