Insurance and collateral fail as trust substitutes because they themselves demand trust.
Evidence
When these guardians of trust that simulate strategies of personalized and contractual control fail, principals turn to their insurance policies, collateral, and margin accounts. Unfortunately, they discover that these institutionalized risk-spreading and compensation mechanisms are no less vulnerable than the institutions they are meant to protect. — Shapiro, Susan P., The Social Control of Impersonal Trust, 124
Categorization
- XREF: Echoes the recursive-regress problem of trust (who watches the watchers) and applies generally to layered institutional safeguards in any principal-agent setting. — connects to: Institutions substitute for trust by securing trustworthiness coercively.; Institutions substitute for the need to trust in risky interactions
Related
- Institutions substitute for the need to trust in risky interactions (similarity 0.83)
- Guarantees merely shift trust to a further party, not remove it (similarity 0.83)
- Institutions can mimic encapsulated-interest incentives to substitute for ongoing relationships. (similarity 0.78)
Broader Connections
- Institutions substitute for the need to trust in risky interactions
#contradicts(0.92) - Institutions substitute for trust by securing trustworthiness coercively.
#contradicts(0.85)