Legally enforceable commitments substitute for trust by realigning incentives

Evidence

Notice that the salesman would love to persuade the customer of his ‘good intentions’, but mere words would not, in this example, be sufficient. If he could at little cost commit himself to choosing B - conditional upon the customer entering the showroom — he would do so. For example, if he could offer the potential customer a legally valid contract in which he would be liable to the customer for an amount something in excess of y — a should the customer subsequently find that he has been sold a lemon, he would offer it. And if he were to offer it the customer’s optimal strategy would be to accept it, and to buy a car, confident of the fact that the salesman would now be handing over a reliable car, it being now in his interest to do so. — Diego Gambetta, Trust - Making and Breaking Cooperative…, 897

Categorization

• XREF: Parallels Hardin’s argument that trust requires observable constraints on opportunism; the enforceable contract makes the salesman’s reliability observable.
• ADDENDUM: Warranties said to be credibility devices, backing the complaint-avoidance mechanisms in the Sacrifice/hierarchy pieces.