Relationship between Trust and Monitoring

52 Pages Posted: 22 Jul 2008

See all articles by R.C. Natarajan

R.C. Natarajan

Indian Institute of Management Indore

Date Written: July 22, 2008


Principal-agent relationship, which is characterised by the absence of legitimate power, necessitates monitoring and control by the principal to align the activities of the agent to the collective goals. However, complete monitoring of the agent is impossible, and expensive. Certain amount of trust is inevitable. This research postulated negative relationship between goodwill trust and control-based monitoring on the one hand and between competence trust and need-based monitoring on the other. The research work used laboratory experiment capturing data from a sample set comprising of executives as well as students of post-graduate management students, both through questionnaires and through a simulation. The study found support to the postulated negative relationships between trust and intended monitoring. However, actual monitoring manifested through allocation of time found rare support for the postulates.

Keywords: Principal-Agent Relationship, Trust, Goodwill Trust, Competence Trust, Monitoring, Control-based Monitoring, Need-based Monitoring

JEL Classification: J19, J50

Suggested Citation

Natarajan, R.C., Relationship between Trust and Monitoring (July 22, 2008). Available at SSRN: or

R.C. Natarajan (Contact Author)

Indian Institute of Management Indore ( email )

Prabandh Sikhar
Rau-Pithampur Road
Indore, Madhya Pradesh 453331
00919755552958 (Phone)


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