The Economics of Trust: Why Institutional Confidence Is the New Currency of Governance

Abstract

Modern societies have come up with institutional trust as a key factor in proper governance. Due to the ineffectiveness of conventional economic indicators in capturing the dynamics of the population belief, trust is becoming a crucial asset of socio-economic capital. This paper examines the role of institutional confidence in the outcome of governance through compliance, lower transaction cost and stable policy environment. It looks at what drivers bolster or undermine trust, including transparency, accountability, equity in service delivery, and information integrity and looks at the impact of levels of trust on social cohesion, economic performance, and state legitimacy. In a conceptual analysis and using illustrative examples, the paper suggests that trust has become a new currency of governance, which is needed to overcome complicated situations in society and create robust relations between states and citizens. In sum, the results indicate the necessity of trust-based governance systems that emphasize ethical leadership and participatory procedures as well as stable institutional performance.