How can people promote the trust necessary for efficient exchange when individuals have short run temptations to cheat? The same question arises whether the traders are legislators swapping votes, medieval merchants exchanging goods, or modern businesspeople trading promises about future deliveries. In each of these situations, one of the important ways in which individuals ensure one another's honest behavior is by establishing a continuing relationship. In the language of economics, if the relationship itself is a valuable asset that a party could lose by dishonest behavior, then the relationship serves as a bond: a trader would be unwilling to surrender this bond unless the gain from dishonest behavior was large.

DEFINE: Defines the economic concept of a relationship as a valuable bond that deters cheating, since dishonest behavior could forfeit that asset. XREF: Connects to repeated-game theory and reputation mechanisms in economics, plus game-theoretic treatments of cooperation and trust.

PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE O…, loc. 2