Trust and Delegation: Theory and Evidence
27 Pages Posted: 3 Mar 2014
Date Written: March 2, 2014
Social trust is associated with good economic performance, but little is known about the transmission mechanisms connecting trust and performance. We explore the effect of trust on delegation decisions. In a theoretical framework, we note that delegation is a low-cost option when management decisions can be implemented without monitoring. This option is, however, risky and more likely to be profitable in higher-trust environments. In a set of cross-country regressions, we show a strong association between trust and delegation, which is increasing in economic sophistication.
Keywords: Social trust, economic development, delegation
JEL Classification: L22, O40, Z13
Suggested Citation: Suggested Citation