Networks of Trust vs Markets

I see a few problems with trust networks that are not generally present in the markets.
I'm glad that your experience was mostly positive, but I'm aware of many examples where things are more tricky.
Part of it comes from two very different but common attitudes towards transactions between friends/family. Some people think that every work should be paid, always. Others expect and provide free help. 
These positions are clearly non-compatible and predictably lead to conflicts, especially when people don't communicate their position clearly. They often think that their position is obviously right and don't even consider the alternative until the conflict arises. 
Another problem is that in transactions with friends/relatives there's often a pressure to work informally. Which is a risk - if they fuck it up you can't even sue them. And it's not that unlikely that they do - you probably did not select them based on their responsibility and their expertise in whatever field they work in. So you might lose all the resources AND hurt your relationship on top of it. 

It's not that these problems are completely unavoidable, but people do get burned.
Some personal examples, so that I don't just parrot stories I've read on the internet.

Extremely bad example.
One of my relatives was technical director and de-facto co-owner of one local ISP. De jure he was nobody, he never got around to do all the paperwork - partly because he trusted his "friends", partly because there were some complicated issues, partly because he is rather lazy. Years and years of no consequences, until they decided to sell the company. Guess who's opinions was no considered and who got nothing out of the deal.  I know, it's extreme and it's not only trust related, but these things do happen. 

Somewhat good example.
Back when I was working in e-shop, our courier got sick. We could not realistically hire replacement in time, and outsourcing would be extremely expensive. My boss asked our sysadmin to help the company out. I remember him discussing that decision with someone - "I know he would not decline, he is a nice guy, but he is too shy to name the fair price, and he would be disappointed if he does not get paid fairly". He ended up paying him slightly more per hour than he paid out actual courier. 

To conclude, my main points are: 

• Don't rely purely on trust if stakes are big 
• Critically evaluate your reasons to trust the person
• Clearly communicate your expectations and listen to their expectations
• Consider all the risks, not just the material ones 

Fully agreed with the underlying realization: trust (enforced by norms, shared culture, and friendship) is FAR MORE efficient than markets.  If you have social capital and trust relationships in areas that match your needs, definitely use them.  Also, continue to invest in such things - they're more valuable than money (at many common margins, at least; exceptions abound).

I disagree that markets reduce trust.  Markets operate with less personal trust, and can achieve many things that a network of trusted contacts just can't.  And it's not evenly distributed, either.  Some people wouldn't even have needed to rent a truck - they have friends who'll lend it.  Some people don't have friends able/willing to drop everything and perform labor for them.  In your case, you used the market to get a truck, and a trust network to get the labor.  Great, but having the market as fallback for those parts you couldn't otherwise do made it possible.

In truth, the efficient point will vary by task and individual (and their network) - almost nothing interesting is purely market or purely non-market, but some mix of the two.  Which is the main point of theory of the firm - the blending of market transactions for many purposes and many timeframes with non-market (mix of contractual and social norms) activities for others.

That immidiatly raised two questions.

1. How can I find more hippies?

2. Why are markets so expensive?

Lets look at the second one.

Based on the name of this piece, I'm not surprised you went there, but the first question sounds like it might change your life.

These problems sound significantly worse in Sweden than in the US. For example, roof replacements cost 8-30K out of 30K median income here. The problems you talked about are real and fundamental, but I think low hanging problems with the market in Sweden are responsible for most of the cost.

I think an economy of formalized trust or reputation is a very interesting concept. Instead of money we would interact with reputation scores or something similar. So your capital is basically your reputation or more precise your historical input to output ratio. The key aspect is that a reputation transaction is not zero sum while an economic transaction is. So i.e. releasing a patent would raise the inventors reputation without lowering reputation of the users of the idea. The economy has at its best increasing returns dynamics, but the monetary system is based on a stone age analogy of giving a X for a Y.  Which is kind of weird!

Trust is a very valuable commodity. However it's a mistake to assume that just because you know someone you should be able to trust them.

I don't find the statistics right now but if my memory is right people generally underrate the chance of various criminal behavior from acquaintances compared to strangers. Competency of friends is often overrated compared to strangers. 

On average your friends are unlikely to be the best in the world or even in your city at what they are doing in their job. While the hippies in your example might be more skilled then the average carpenter they are an expection and a lot of people do now average carpenters. 

So I think it's interesting that the market seem so expensive for these tasks. It makes sense for the carpenter case due to the information asymmetry but I don't see what there aren't more affordable moving companies in your nation.

As for markets vs trust a few thoughts:

• You seem to be of the view that most consumers (irrationally) go to markets for most of their transactions when they could be relying on trust instead. Is that really true? Many of the goods I get, relationships, conversations, essay feedback, sex, childrearing, etc... I get through non-market trust based mechanisms. Isn't it the case that we just don't think of non-traded things as goods?
• You seem to be of the opinion that trust is massively more cost effective than markets in many cases? Again I'm somewhat sceptical. I think your selection procedure is to take things you do on the market and find the few of them that are far more effective when done outside of the market. This leads to a biased sample because you're selecting specifically for things the market does badly.
• Another thing to consider is the cost of trust based networks vs markets. Specifically, you're limited to in-network people and hence to only a very small subset of goods/services.

(By the way, still think the "trust can really help with transactions" gist is super interesting and useful. Even outside of laws and just in terms of cultural norms, living/working in a low-trust culture can be a shocking experience to anyone accustomed to a western european country)

This is a super interesting and thought provoking essay. Thanks for writing it! Although it does feel overstated in this essay, I really like the core point of how trust makes things better, and how there are costs to enable transactions when trust is absence (police, lawyers). It's new, plausible and powerful: a combination I don't come across all that often.

"Markets!" my econ professor would proclaim in a thick Armenian accent. "If only they were a machine! People would love a machine where you can put in wheat and pick out a helicopter."

That is a marvelous machine.

Wow. It never clicked to me like this. Thanks. 

Someone who has done an intro class to economics could probably argue that the markets would correct for this. Isn't crooked carpenters a great opportunity for honest ones to increase their market share?

No. Not if the consumer never realizes what happens, which they usually don't – because of asymmetries of information. Usually, the customer only sees the wholesome, friendly-looking attitude – and gives a rave review after being exploited.

100%. I've realized this more and more as I've grown older and seen many examples of it.

One sticks out. I worked for a company that builds software for other companies. Ie. one of our projects was building the mobile app for CVS. They charge like $150/hr for developer time, pay developers $40k/year, consistently deliver projects that are late and flawed, and have constant chaos internally.

I was a naive 22 year old when I worked there. It boggled my mind that they stayed in business! How do they survive? I get that inefficiency might last for a little while, but surely they'll be discovered as imposters and go out of business eventually, right? Well, it's sort of the opposite. They get to say on their website that they built the mobile app for CVS. Boom: social proof. My understanding is that it's this sort of positive feedback cycle of social proof that keeps the money flowing in. That along with, as you say, asymmetries of information.

Asymmetries of information are fundamentally a good thing. If you know something that I don't, we can pool our knowledge and achieve things that are too complex for a single mind.

Nitpick, but I think what you meant to say is that given the existence of information asymmetry, it's good that people can work together. If you could wave a magic wand I think you'd probably want to just transmit the knowledge to the less knowledgeable person.

And the few things they do produce in-house – say food – might not even be the things where they have a comparative advantage.

It's great to see you note this! It's always seemed weird to me that in our hyper-specialized society, people still cook so much. Cooking in bulk is more efficient. Why are there not places where you could get a huge pot of chili for like $1.50?

In his podcast, Adam Ragusea talks about how in east Asia it's often cheaper to eat out than to cook at home and so lower income people mostly eat out. I just re-watched it and am not really seeing a coherent explanation. "Rice" is the one word explanation. He goes into the history and stuff. But rice is cheap in the west too. He mentions labor, but talks about how that doesn't explain it because countries like Japan don't have cheap labor.

Are you sure the math hold up? there are a bunch of posts about how spend money to buy time, and if I need to chose between waste 50 HOURS on investigation and just buy the more expensive product, it's pretty obvious to me that the second option is best. maybe not in this example, though I see it as false dichotomy - I tend to go with "ask in the specialized good-looking facebook group" as way to chose when stakes are high.

In the last years I internalize more and more that I was raised by poorer people then I am now, that my heuristics just doesn't count all the time that I waste comparing products or seeking trusted professionals, and it would have been best for me to just buy the expensive phone, instead of asking people for recommendations and specs. 

also, and this is important - the interpersonal dynamics of trust networks can be so much more expansive then mere money. I preferred to work and pay for my degree myself then ask my parents for help. I see in real time as one my friend that depend on reputation for her work constantly censure herself and fret if she should censor herself. 

basically, I would have give my past self the opposite advise, and what i want is an algorithm - how to know if you want more trust networks or more markets?

or, actually, i want BETTER MAP. facebook recommendations are not exactly trust network, but not markets, either. I don't think this distinction cut reality at the joints. there is a lot to explore here - although I'm not the one who should do the exploring. IT will not be useful for me, as I try to move to the direction of wasting less time and more money on things. 

Closely related: Leaky Delegation: You are not a Commodity (by Darmani) [LW · GW].