12. Where We Are and Where We Are Headed: A Conclusion of Sorts

In the financial world, reputation no longer exists as a way to engender trust and, as a result, does little if anything to facilitate market interactions. Certain phenomena such as social discrimination using religion, ethnic, or cultural distinctions; social networks; self-help institutions; and regulation, at least in theory, can serve either as supplements or replacements to reputation as a source of trust. Regulation is, however, a dangerous replacement for reputation. The better a regulatory system in an economy is perceived to be, the less incentive exists for firms to invest in reputation, as investors will already be confident of the firms’ actions due to the regulations. ...

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