This term, I asked my students on their exam to give me one strong argument about the benefits of trust and the costs of distrust.

Nobody mentioned the Doritos Loco Taco.

But the Doritos-shelled taco, that neon-orange fast-food abomination, offers a vivid example of the power of incomplete contracts and trust in allowing cooperation to occur.

Frito-Lay and Taco Bell collaborated for years in developing the technology that would ultimately produce this nacho-taco amalgam, and did so without formal contracting in place:

“While buzz for the DLT’s national launch was locked in, a deal between Taco Bell and Frito-Lay was not. As Taco Bell legend has it, though the companies had spent years working together on the DLT, no official contracts had ever been signed. Taco Bell’s 50th birthday was fast approaching when Greg Creed and then-Frito-Lay CEO Al Carey met in Creed’s office to hash out final details. “We both realized that if we let the lawyers get involved, this thing would get slowed down and bogged down. So we did a handshake deal–that’s all we had: You’re going to spend the money, and I’m going to spend the money [on the DLT],” Creed recalls. “Everyone was like, ‘You can’t launch without a contract.’ And we were like, ‘Just watch us.'”

The upshot of this approach?

“When we met in my office [before launch], we said that if either one of us gets sacked or promoted, we would actually have to write a contract,” Creed recalls. “When [then-Frito-Lay CEO] Al [Carey] got promoted to run the PepsiCo beverage business, I phoned him up and said, ‘So I guess we better write that contract then.’ Well guess what? We sold 100 million tacos in the first 70 days. If we waited for those contracts to be finished, we would’ve sold 100 million less.”

 

So, when someone next asks you:  What’s responsible for America’s obesity epidemic?  You can now confidently answer:  Incomplete contracts and trust.

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