Some words on Trust

Volkswagen : an institutional case.

Why reputation is a key element of business and to extension to economic growth ?

The answer is in a document studied at home (homework)

Uncertainty + limited intellectual capacity to deal with avalaible information => Transaction costs that is the set of costs that occured in making a contract, firstly to take account of all the characteristics of the product or of the exchanged service, eg labor force, secondly to enforce the terms of the contract. What to do if one party didn't respect his commitment ? And how to be sure he didn't ? How to prove an opportunistic behavior concerning the quality of the delivered product, the time delay, ... ? To be sure, a third party must enforce contract, an independant judge for instance though the force of law (of the police).

Confidence is a way to reduce transaction cost. If a merchant has a good reputation, transaction costs will be reduced, customers won't spend to much money to verify the quality of the product and less litigations will occur. That's why it's so difficult to regain the lost confidence.

That's why confidence and trust are included in the more general notion of social capital or social infrastructure. No economic growth without a minimal level of social infrastructure.

VOCABULARY

 

A lawsuit : procès

To fil a lawsuit : déposer plainte

Supreme court : Cours suprême (des USA). One of the most, if not the most, important formal institution because it's in charge of verify the constitutionality of bills.

Damages : indemnisations

Attorney : procureur.

Judge : juge

Lawyer : avocat

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