Trust rarely appears on a balance sheet. But when it disappears inside an organization, its replacement does: more approvals, more monitoring, slower decisions, duplicated work, and increasingly expensive coordination.
Most companies describe trust as a cultural aspiration. Economists offer another way to think about it: as a mechanism that changes the cost of getting work done.
Transaction Cost Economics, developed most influentially by Nobel laureate Oliver Williamson, starts from a simple premise. Producing something has a cost, but coordinating the people and organizations required to produce it creates additional costs: negotiating, monitoring, enforcing agreements, resolving uncertainty, and protecting against opportunistic behavior.
Trust changes that equation.
Research on supplier relationships has demonstrated just how dramatically. In a study of 344 supplier-automaker relationships in the United States, Japan, and Korea, researchers Jeffrey Dyer and Wujin Chu found that greater perceived trustworthiness was associated with lower transaction costs and greater information sharing. The least-trusted automaker in the study incurred procurement transaction costs five times higher than the most trusted.
Trust, in other words, can function like infrastructure: largely invisible when working, expensive when it isn’t.
The Distrust Tax
Consider what happens after confidence in a team begins to deteriorate.
A manager who once delegated a decision requests approval. A project that previously required one meeting now requires three. Employees document conversations defensively. Information travels through narrower channels. Another layer of reporting appears.
Individually, these actions can look prudent. Collectively, they create what might be called a distrust tax.
Transaction costs include search, bargaining, monitoring, and enforcement, activities separate from producing the actual good or service. Organizations need some of these controls regardless of culture; trust is not an argument for eliminating accountability. But research suggests that substituting monitoring for trust isn’t always costless. Economic research has found that, in relationships where a psychological contract exists, increased monitoring can itself be interpreted as distrust and potentially reduce effort.
The important distinction is between controls that make work safer and controls that exist because nobody trusts anyone to work without them.
Information Has an Economics, Too
Trust also affects something considerably harder to price: how quickly useful information moves.
A 2024 meta-analysis covering 60 empirical studies found that both calculative and relational trust positively affected organizational performance. The mechanisms differed: calculative trust operated partly through information exchange and reduced uncertainty, while relational trust worked through communication and commitment.
That matters because organizations don’t make decisions using information they technically possess. They make decisions using information that reaches the right person.
When employees withhold concerns, soften bad news, or avoid challenging assumptions, information exists without becoming organizational knowledge.
This is where economics intersects with Amy Edmondson’s foundational research on psychological safety. Her study of 51 work teams found psychological safety associated with learning behaviors such as seeking feedback, discussing errors, and experimenting, and those learning behaviors helped explain differences in team performance.
Psychological safety isn’t identical to trust. But both illuminate the cost of interpersonal risk: if speaking requires too much personal risk, organizations receive less information.
Trust Can Become Operating Leverage
None of this means high-trust organizations run without contracts, approvals, audits, or performance management.
The more useful question is whether those systems provide necessary governance, or compensate for organizational relationships that no longer function.
Evidence connecting trust and performance extends beyond theory. Research using matched employer-employee data from British workplaces found employee trust positively associated with financial performance, labor productivity, and product or service quality. A 2024 study across public-sector organizations in eighteen Latin American countries similarly found high-trust employees more willing to collaborate, share information, and support technological innovation.
The advantage isn’t that trusting organizations are nicer places to work.
It’s that they may require less organizational friction to accomplish the same work.
The Bottom Line
Companies meticulously optimize supply chains, software stacks, headcount, and capital because inefficiency in those systems has an obvious price.
Trust deserves similar scrutiny.
When trust is functioning, information moves, people delegate, mistakes surface earlier, and coordination requires fewer defensive mechanisms. When it breaks, organizations build infrastructure around its absence.
Trust may be intangible. The costs created when it disappears are not.
