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Globalization and Trust: Theory and Evidence from Cooperatives

32 Pages Posted: 19 Aug 2004  

Ramon Casadesus-Masanell

Harvard University - Strategy Unit

Tarun Khanna

Harvard University - Strategy Unit

Date Written: March 2003

Abstract

We study the effect of globalization on the stock of trust in organizations. We present a simple model of endogenous trust and show that contrary to centralized hierarchies (pure limited liability firms), decentralized organizational structures (cooperatives) foster the emergence of trust. We treat organizations as directly bservable 'summary statistics' for underlying trust and ask what will be the fate of trust as the world becomes increasingly globalized. Because the cooperative is an intrinsically less efficient organizational form and globalization implies harsher competitive pressures, conventional wisdom suggests that the viability of cooperatives is in jeopardy. We show that this is not necessarily true. If the increase in competition is bundled with an increase in uncertainty and risk, the cooperative may become a more efficient organizational form. We conclude that globalization does not necessarily erode trust. The case of Mondragon Corporacion Cooperativa is used to motivate assumptions and illustrate the results.

Suggested Citation

Casadesus-Masanell, Ramon and Khanna, Tarun, Globalization and Trust: Theory and Evidence from Cooperatives (March 2003). William Davidson Institute Working Paper No. 592. Available at SSRN: https://ssrn.com/abstract=577703 or http://dx.doi.org/10.2139/ssrn.577703

Ramon Casadesus-Masanell

Harvard University - Strategy Unit ( email )

Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States
617-496-0176 (Phone)
617-496-5859 (Fax)

HOME PAGE: http://www.people.hbs.edu/rmasanell

Tarun Khanna (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Boston, MA 02163
United States
617-495-6038 (Phone)
617-495-0355 (Fax)

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