The Trust Revolution provides an account of the role that trust plays in improving
human conditions and of how technology can shape that role. These topics can appeal to a broad audience that spans from those interested in the economic success of societies
to those curious about the implications of recent technological innovations for human
relations. Hence, I believe that the book fits quite nicely with readers of The Independent
The Trust Revolution can appeal to such a broad audience because it brings together
two very important issues. On the one hand, the first part of the book, loosely
from chapter 1 to chapter 6, resembles and draws from previous work studying the
conditions that facilitate human flourishing. In this respect, the book can be linked to
work such as Adam Smiths Wealth of Nations and Daron Acemoglu and James A.
Robinsons Why Nations Fail: The Origins of Power, Prosperity, and Poverty (New York:
In my opinion, the greatest strength of The Trust Revolution is the authors ability to
provide a new framework to analyze some of the recent technological developments and
to better understand and predict how different agents in the economy react to these
developments. Their use of the economic framework of demand and supply to study the
provision of trust appears particularly fruitful in highlighting how many of the policy
responses to new technological developments may be driven by regulators concerns over
their own diminished importance as trust providers rather than by genuine interest in the
welfare of consumers. In this sense, the book shows how recent appeals to the sharing
economy to approach regulation in a more proactive way may be ill posed and hopeless.
For example, the book helps the reader see how statements such as Regulation is often
the most significant barrier to future growth for sharing economy firms. This is particularly
unfortunate since the incentives of city governments and sharing economy firms
are often aligned (Sarah Cannon and Lawrence H. Summers, How Uber and the
Sharing Economy Can Win Over Regulators, Harvard Business Review 13, no. 10
: 2428) are based on an underlying misunderstanding of the nature of trust
provision and of the incentives that regulators have to protect their role as trust providers.
In this respect, I found illuminating the insight that companies such as Lyft and
Uber are competing with the Taxi Commission rather than with taxi drivers and found
particularly powerful and well suited the authors use of an analogy between the position
of taxi drivers and the Taxi Commission toward ride-sharing companies and the position
of bootleggers and Baptists toward the prohibition of alcohol. Nevertheless, I
believe that the authors enthusiasm for the trust revolution may have caused them to
overlook some of their own assumptions and to miss some important aspects in their
analysis. I elaborate more on these problems as I describe the content of the book.
The book can be loosely divided in two parts. The main purpose of the first part is
to convince the reader that trust plays a key role in enabling humans to prosper and that
new technologies may reshape the provision of trust considerably. The second part of
the book provides examples of the arguments in the first part and speculates about
possibilities of trust being provided in new and innovative ways.
The authors define trust as the information and reliability that enables two or
more parties to coordinate, cooperate, or to do business while having confidence in fair
dealing (p. 22), and they argue that trust enables humans to access the benefits of
specialization and to unlock productivity.
The authors base their argument on three premises: (1) trust is an innate feature of
human nature; (2) trust facilitates exchanges; and (3) by facilitating exchanges, trust
increases economic performance. I find the discussion of premise (1) compelling because
there is growing evidence that humans extend trust in situations in which traditional
economic theory recommends otherwise (e.g., see Joyce Berg, John Dickhaut, and Kevin
McCabe, Trust, Reciprocity, and Social History, Games and Economic Behavior 10
: 12242). I find the discussion of premises (2) and (3) less compelling.
The authors argue that trust facilitates exchange, which then leads to specialization,
productivity, and ultimately wealth (p. 27). Although they provide some evidence
of the link between trust and social well-being, the cited work and related
arguments appear insufficient to justify premises (2) and (3). First, as Munger describes
in Tomorrow 3.0 (p. 6), trust is only one of the possible impediments to cooperation.
Using the framework of transaction-cost economics, he discusses how triangulation and
transfer costs also play a role. Hence, even if trust is very high, cooperation may be
impaired by high-enough search costs (triangulation) or high-enough payment and/or
transportation costs (transfer). This aspect is particularly important because the new
technologies of interest in The Trust Revolution most likely affect not only trust but also
triangulation (Andrey Fradkin, Search Frictions and the Design of Online Marketplaces,
working paper, MIT, 2015) and transfer costs (Hal R. Varian, Computer
Mediated TransactionsAmerican Economic Review 100, no. 2 : 110).
Second, it remains unclear not only whether trust represents the main facilitator of
cooperation but also whether trust should play any role at all once institutions are taken
into consideration (Oliver E. Williamson, Calculativeness, Trust, and Economic
Organization,Journal of Law and Economics 36, no. 1, part 2 : 469). In this
sense, the authors definition of trust appears to blend the mechanisms to create trust
(information and reliability) with the trust outcome (willingness to commit to a collaborative
effort before knowing how the other party will behave, as in James S.
Coleman, Foundations of Social Theory [Cambridge, Mass.: Harvard University Press,
Irrespective of these potential weaknesses, the first part of the book contains two
quite powerful insights. The first insight is the introduction of a typology of trust that
departs from the traditional approach of focusing on trust generators (e.g., see Dan
Arielys blog The Trust Factory) and moves toward a focus on trust providers (chapter 4). The authors identify three main trust providersthe government, corporations, and
personal relationshipsand highlight how the three categories differ in the value they
provide and the cost they entail:
Government can access economies of scale in the provision of trust but faces diminishing
marginal returns in doing so because of the emergence of agency costs as
the size of the government grows.
Businesses have the advantage of competing with each other for the provision of
trust relative to the governments monopolistic position but may have the incentive
to cheat in certain circumstances.
Personal trust has the advantage of arising from the directedness of its connection
between people, but it is too scarce to scale at the societal level.
This new perspective is particularly valuable when combined with the analysis of
how recent technological developments and the creation of platforms change the
benefitcost analysis of different trust providers, which brings me to the second insight.
The second insight, given in chapters 5 and 6, consists of a new way to think about
trust, in particular the idea that we should think about trust in terms of demand and
supply. Within this framework, individuals demand trust and providers supply it in
competition with each other (p. 106). Hence, trust provision evolves over time as a
function, among other things, of the relative costliness of different trust providers.
Hence, the authors conclude, technological advancements may cause a reshuffling of
the relative importance of trust providers away from government and businesses toward
persons because the new technology behind the sharing economy has the potential to
increase the scalability of personal trust (p. 46).
Although I am very sympathetic to the conclusion the authors draw, I also think it
is worth keeping in mind that this conclusion rests on the implicit assumption that
different trust providers are perfect substitutes. Can the ex ante screening performed by
platforms created by recent technological advancements substitute for the ex ante
screening performed by governments and business? I believe that the answer to this
question is with no doubt yes, which supports the authors conclusion that government
and businesses should become less-important trust providers. Given that
government- and business-provided trust is concerned mostly with ex ante screening, to
what extent does a well-functioning ex post monitoring system such as the continuous
feedback allowed by new technologies remove the need for up-front certification? (See
Liran Einav, Chiara Farronato, and Jonathan Levin, Peer-to-Peer Markets,Annual
Review of Economics 8 : 61535.) Is it possible that instead of losing in importance,
government and businesses will specialize in the provision of ex ante
screening, while new platforms will specialize in the provision of ex post monitoring?
Providing an answer to this question is quite difficult, but it is important to keep the
question in mind because it may change the implications of the analysis performed in the book and lead to an increase, rather than a decrease, in the provision of trust by
government and businesses if ex ante and ex post mechanisms work as complements.
The second part of the book, from chapter 7 to chapter 11, provides practical
examples of the arguments advanced in the previous chapters and speculates about the
future. This exercise is useful in demonstrating the authors ideas and providing tangible
applications to everyday-life decisions. The greatest strength of this part of the book is
that it addresses a number of concerns usually raised relative to recent technological
developments and their potential role as trust providers, such as externalities, information
asymmetry, and monopoly power (see, for example, Benjamin G. Edelman and
Damien Geradin, Efficiencies and Regulatory Shortcuts: How Should We Regulate
Companies Like Airbnb and Uber? Stanford Technology Law Review 19 : 293).
Nevertheless, it is in this part that the authors enthusiasm for recent technological
developments appears to bite the most in terms of reduced analytical rigor. For example,
although recent technological developments might facilitate real-time information
flows from providers and consumers (p. 147), the claim that corporate law and business
regulation could be replaced with machine algorithms that maximize corporate objectives
more efficiently (p. 183) resembles the socialist computational proposal (Oskar
Lange, The Computer and the Market, in Socialism, Capitalism, and Economic
Growth: Essays Presented to Maurice Dobb, ed. C. H. Feinstein [Cambridge: Cambridge
University Press 1967], 15861). In particular, this proposal seems to run up against the
knowledge problem (F. A. Hayek, The Use of Knowledge in Society, American
Economic Review 35, no. 4 : 51930) because it assumes that it would be
possible for shareholders to define their goals and identify optimal courses of action in
relation to all future states of the world ex ante.
To conclude, I believe that The Trust Revolution presents some provocative and
well-thought-out ideas that are potentially appealing to a broad audience, which makes
the book well suited for the target audience of The Independent Review.