Calculative-based trust and social welfare

Trust building has been acknowledged as one of the critical factor for the success of e-commerce. However, few sources of trust were identified in online transaction. This paper tries to fill the gap by investigating calculative-based trust. Specifically, an infinitely repeated game model is built to illustrate how strangers in online transaction build trust relationship based on the calculation of their own benefits. Furthermore, we relate the strategies of trading parties to social welfare and provide policy implications on how to control the cheating behaviors without jeopardizing social welfare.