Embedding Trust: A Game-Theoretic Model for Investments in and Returns on Network Embeddedness

Abstract

Social relations through which information disseminates promote efficiency in social and economic interactions that are characterized by problems of trust. This provides incentives for rational actors to invest in their relations. In this article, we study a game-theoretic model in which two trustors interact repeatedly with the same trustee and decide, at the beginning of the game, whether to invest in establishing an information exchange relation between one another. We show that the costs the trustors are willing to bear for establishing the relation vary in a non-monotonic way with the severity of the trust problem. The willingness to invest in the information exchange relation is high particularly for trust problems that are neither too small nor too severe.