Relationship between Trust and Monitoring
52 Pages Posted: 22 Jul 2008
Date Written: July 22, 2008
Abstract
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: Suggested Citation
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