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Information Processing Moderators of the Effectiveness of Trust-Based Governance in Interfirm R&D Collaboration

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  • Stephen J. Carson

    (Department of Marketing, University of Utah, 1645 East Campus Center Drive, Salt Lake City, Utah 84112)

  • Anoop Madhok

    (Department of Management, University of Utah, 1645 East Campus Center Drive, Salt Lake City, Utah 84112)

  • Rohit Varman

    (Indian Institute of Technology, Kanpur, India 208016)

  • George John

    (Marketing Department, Carlson School of Management, University of Minnesota, 321 19th Avenue South, Minneapolis, Minnesota 55455)

Abstract

It is generally assumed that improved outcomes accompany the use of trust as a governance mechanism in an interfirm relationship. Briefly, trust is a social lubricant that reduces the friction costs of existing trade and/or serves to increase the scope of trade. In contrast to this universalistic view, we posit that the performance of trust-based governance is contingent on the ability of trading partners to “read” each other and learn about counterpart behavior. These information-processing abilities allow firms to assess partner trustworthiness better, which reduces the risk of misplaced trust. The increased efficacy of communication and learning from one another also enables them to better capitalize from the adaptation and revision possibilities uncovered through trust-based governance during the task-execution phase. Given the central role of these cognitive requirements, we assess these contingent effects with data from a knowledge-intensive task setting. Using a sample of 129 firms that have engaged outside contractors on client-sponsored R&D projects, we find strong support for our thesis. Specifically, we find that trust-based governance has a larger positive impact on task performance when the client is more skilled at understanding the outsourced tasks at hand, the task itself requires skills that are relatively more readily taught (less tacit), and the task itself is organized in parallel with work being done at the contractor as well as the client. As a corollary, we also find that firms adopt trust-based governance to a greater extent as these information-processing abilities increase, as well as with the colocation of the contractor and client. Suggestions for engineering trust-based governance are offered.

Suggested Citation

  • Stephen J. Carson & Anoop Madhok & Rohit Varman & George John, 2003. "Information Processing Moderators of the Effectiveness of Trust-Based Governance in Interfirm R&D Collaboration," Organization Science, INFORMS, vol. 14(1), pages 45-56, February.
    • Handle: RePEc:inm:ororsc:v:14:y:2003:i:1:p:45-56
    DOI: 10.1287/orsc.14.1.45.12811
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    References listed on IDEAS

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