Trust as a determinant of Social Welfare in the Digital Economy

Abstract

Abstract Trust plays a critical role in determining social welfare in the digital economy and has significant socioeconomic implications. To investigate the relationship between trust and social welfare in this context, we developed a social welfare function that accurately quantifies the positive impact of the digital economy. Employing a Markov analysis framework, we modelled trust as a variable that evolves based on the agent's interactions with the system, characterizing the system's dynamic behaviour as a series of probabilistic transitions between states. We ran multiple simulations to gather a significant sample of possible outcomes and analyzed the statistical correlation between trust and social welfare. We used the time it takes for the digital economy to converge towards the non-digital economy as a metric to compare the performance of the separate economies. We controlled for other factors influencing social welfare, such as the number of transactions and market competition levels. We compared the actual outcomes of the simulation study with our theoretical predictions. Results indicate a significant impact of trust in maximising social welfare by achieving a steady state in fewer iterations for a developed digital economy. The socioeconomic benefits of trust are more visible in a digital than in a non-digital economy. Technological progress or innovation is crucial to attaining responsible consumption and production patterns. The digital economy's sustainability hinges on trust, which policymakers must prioritize in light of trust erosion. An inclusive approach considering cultural and socioeconomic factors is required to increase public trust in institutions and government. Policymakers may consider measures such as enhancing data privacy, promoting digital literacy, and developing effective legal frameworks that support trust-building. By prioritizing these areas, policymakers can build a more sustainable and equitable digital economy that maximizes social welfare.