Philip Evans, Bob Wolf

A force critical to lowering transaction costs is trust. Trust substitutes for search, negotiation, monitoring, and enforcement; it substitues for hierarchical control internally and for the legalisms of contracts externally. The core elements of trust are threefold: reciprocity (the understanding that the parties will deal with each other repeatedly), reputation (the understanding that other potential parties are watching), and a common semantic (a shared language through which the parties can sort through ambiguities and arrive at mutual understandings). Reciprocity and reputation align motives, and a common semantic aligns perceptions.

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