Trust and Governance: Untangling a Tangled Web

Abstract

There is much debate and diversity of results in the literature on the relationships between formal governance and trust. Drawing on concepts such as substitution, complementarity and crowding out, scholars have variously argued for (and found evidence consistent with) both positive and negative relationships between trust and governance complexity. Using a simple but general formalization, we state the conditions under which one might expect a negative or a positive relationship between pre-existing trust and governance complexity, and whether crowding out or complementarity arguments are necessary for such outcomes. Our analysis provides a platform for simple but rigorous analysis of other possible relationships between trust and governance, and also suggests that the debate about the relationship between governance and trust could be fruitfully redirected through greater attention to the analytical structure of the arguments.

Keywords: Trust, Governance

JEL Classification: D23, L22, L23