Economics 201

Case of the Day: Trust in economic transactions

All of us in modern economies make daily transactions in which valued goods or services are transferred from one person to another. Chapter 2 of Dasgupta's Economics: A Very Short Introduction focuses on the trust relationships that are necessary for those transactions to occur. In order to read that chapter, you had to obtain access (at least temporarily) to a copy of the book. In this case study, we consider the trust relationships involved in a recent transation, perhaps the transaction(s) that enabled you to read Dasgupta's book.

1. Describe the transaction you are analyzing. Who were your "counterparties" on the other side of the transaction(s) involved in obtaining the good or service? How, if at all, did you compensate the counterparties for making the good or services available to you?

2. In what ways did you have to trust the counterparties to your transaction? In what ways did the counterparties have to trust you? (Think of all the things that could have gone wrong if one party was not trustworthy.)

3. How did you and your counterparty achieve the degree of trust required for a successful transaction? In other words, what legal, social, or other institutional mechanisms facilitated the establishment of trust in this case?

Answer the Questions in Moodle