Trust and Formal Control in Interorganizational Relationships
24 Pages Posted: 20 Feb 2003
Date Written: January 2002 2,
Abstract
There is a tendency to see trust and control by formal agreements as substitutes. According to transaction cost economics trust is unreliable, and some form of control is needed to reduce hazards of opportunism. According to others, high trust allows for a limited extent of formal control. Formal control signals distrust and thereby evokes reciprocal distrust and formal control. This paper studies all combinations of high/low trust and high/low formal control in four longitudinal case studies. We find that trust and formal control are at least as much complements as they are substitutes. We find that like trust contracts can be both the basis and the outcome of relations.
Keywords: inter-organizational relations, trust, contract, governance
JEL Classification: M, M10, L2
Suggested Citation: Suggested Citation
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