Trust is a public good whose benefits spill beyond its holders, causing underinvestment.

Evidence

The second point this simple example brings to the surface is the underlying externality among persons that trust, or the lack of it, creates. Trust, as economists have noted before, is a public good, a social lubricant which makes possible production and exchange (see for example Akerlof 1970; Arrow 1974). To see this externality, suppose for example that 5 exceeds y. In this case the honest salesman would be willing to pay a maximum of 6 to have his reputation increase from a figure below 6 to one above it. But the customer would also be willing to pay something towards this increase — in fact to the extent of his own increase in expected net benefit. We may thus conclude that an honest salesman’s willingness to pay for an increase in reputation falls short of society’s willingness to pay. The point is that if your trust in me increases it certainly benefits me. But if there are good reasons for this increase in trust it benefits you as well. This latter benefit I do not take into account when I try to build up my own reputation. This is the source of ‘market failure’ and, in particular, why there might typically be an underinvestment in trust formation. — Diego Gambetta, Trust - Making and Breaking Cooperative…, 934

Categorization

• XREF: Connects directly to the reader’s analysis of Saramago’s Blindness: when observability collapses (as in the epidemic), the public-good benefit of trust vanishes, explaining the slide into Hobbesian predation. — connects to: Trust should be a by-product of good institutions, not their precondition — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2773; Institutions substitute for trust by securing trustworthiness coercively.
• ADDENDUM: Supports the trust-as-observable-constraints argument the reader is building against Hardin—underscores why trust collapses without observable mutual benefit accounting.
• corroborated: 2 independent passages support this claim — Diego Gambetta, Trust - Making and Breaking Cooperative…, 934

Broader Connections

• Trust should be a by-product of good institutions, not their precondition #expands (0.78) — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2773
• Institutions substitute for trust by securing trustworthiness coercively. #expands (0.72)