Tài liệu The role of trust in financial sector development

The role of trust in financial sector development


by


Biagio Bossone


World Bank


Summary


In a decentralized-decisions economic environment, agents consider the risk that others
might unfairly exploit informational asymmetries to their own advantage. Incomplete trust,
affects, in particular, financial transactions whereby agents trade current real claims for promises
of future real claims. Agents thus invest considerable resources to assess the trustworthiness of
others with whom they know they can interact only under conditions of limited and
asymmetrically distributed information, and to ensure compliance with contractual obligations.
This study analyzes how incomplete trust shapes transaction costs in trading assets, and how it
affects intertemporal resource allocation and asset pricing decisions from rational, forward-
looking agents. The analysis leads to some core propositions on the role of finance and financial
efficiency for economic development. The study identifies policies for financial sector reforms in
emerging economies, aimed to improve the efficiency of the financial system in dealing with
incomplete trust.


I wish to thank J. Caprio, P. Honohan, M. Ghirga , and C. Schioppa for their helpful comments on
previous versions of this work. Of course, I remain the only responsible for any errors and the
opinions expressed in the text, which do not necessarily reflect those of the World Bank. As usual,
and more than usual, I owe profound gratitude to my wife Ornella for her support.