Working Paper No. 00-38:
Law v. Trust
Date Posted: 2000
Abstract (below) | Full text (most recent) on SSRN
The special concept of trust does not provide a distinct justification for mandatory legal rules. Although regulation might lead parties to decide to rely on others, it does not produce the sort of transaction-cost-reducing "trust" that should matter for public policy - that is, trust based on altruism, norms, personal relationships, and social capital. Moreover, using mandatory rules to increase trust may have precisely the opposite effect of increasing distrust and undermining trust-creation devices. Thus, trust provides an additional argument in favor of enforcing contracts.