Friday, October 29, 2010

Law v. Trust

Must Read! By Larry Ribstein @ Truth on the Markets.

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.
Click Here to Download: Law v. Trust

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