Trust, Transparency, and Complexity

Richard T. Thakor, Robert C. Merton

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


This paper develops a theory that generates an equilibrium relationship between product complexity, transparency, and trust in firms. Complexity, transparency, and the evolution of trust are all endogenous, and equilibrium transparency is nonmonotonic. The least-trusted firms choose the lowest product complexity, remain opaque, and substitute ex ante third-party verification for information disclosure and trust. Firms with an intermediate level of trust choose an intermediate level of complexity and transparency through disclosure, with more trusted firms choosing greater complexity and lower transparency. The most-trusted firms choose maximum complexity while remaining opaque, eschewing both verification and disclosure.

Original languageEnglish (US)
Pages (from-to)3213-3256
Number of pages44
JournalReview of Financial Studies
Issue number8
StatePublished - Aug 1 2023

Bibliographical note

Publisher Copyright:
© 2023 The Author(s). Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.


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