Trust and Formal Control in interorganizational Relationships

R. Klein Woolthuis and Bart Nooteboom

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: There is a tendency to see trust and control by formal agreements as substitutes. According to transaction cost economics trust is unreliable, and some form of control is needed to reduce hazards of opportunism. According to others, high trust allows for a limited extent of formal control. Formal control signals distrust and thereby evokes reciprocal distrust and formal control. This paper studies all combinations of high/low trust and high/low formal control in four longitudinal case studies. We find that trust and formal control are at least as much complements as they are substitutes. We find that like trust contracts can be both the basis and the outcome of relations.

Keywords: contract; governance; inter-organizational relations; trust (search for similar items in EconPapers)
JEL-codes: L2 M M10 (search for similar items in EconPapers)
Date: 2002-02-01
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:ems:eureri:162

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