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Trust and Formal Control in interorganizational Relationships

Author

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  • Klein Woolthuis, R.
  • Nooteboom, B.

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.

Suggested Citation

  • Klein Woolthuis, R. & Nooteboom, B., 2002. "Trust and Formal Control in interorganizational Relationships," ERIM Report Series Research in Management ERS-2002-13-ORG, 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.
    • Handle: RePEc:ems:eureri:162
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    References listed on IDEAS

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    1. Lyons, Bruce R & Mehta, Judith, 1997. "Contracts, Opportunism and Trust: Self-Interest and Social Orientation," Cambridge Journal of Economics, Oxford University Press, vol. 21(2), pages 239-257, March.
    2. Williamson, Oliver E, 1993. "Calculativeness, Trust, and Economic Organization," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 453-486, April.
    3. Nooteboom, B. & Berger, H. & Noorderhaven, N.G., 1997. "Effects of trust and governance on relational risk," Other publications TiSEM 8e83932e-064c-40e8-afe7-4, Tilburg University, School of Economics and Management.
    4. Hannan, Michael T. & Polos, Laszlo & Carroll, Glenn R., 2002. "Structural Inertia and Organizational Change Revisited II: Complexity, Opacity, and Change," Research Papers 1733, Stanford University, Graduate School of Business.
    5. Hannan, Michael T. & Polos, Laszlo & Carroll, Glenn R., 2002. "Structural Inertia and Organizational Change Revisited I: Architecture, Culture and Cascading Change," Research Papers 1732, Stanford University, Graduate School of Business.
    6. Akbar Zaheer & N. Venkatraman, 1995. "Relational governance as an interorganizational strategy: An empirical test of the role of trust in economic exchange," Strategic Management Journal, Wiley Blackwell, vol. 16(5), pages 373-392.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bottazzi, L. & Da Rin, M. & Hellmann, T., 2010. "The Importance of Trust for Investment : Evidence From Venture Capital (Revision of DP 2009-43)," Other publications TiSEM 27f82ebe-4bae-4bfa-a3a0-8, Tilburg University, School of Economics and Management.
    2. L. Bottazzi & M. Da Rin & T. Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 612, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Thomas Mellewigt & Anoop Madhok & Antoinette Weibel, 2007. "Trust and formal contracts in interorganizational relationships - substitutes and complements," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 833-847.
    4. Cao, Mengyi & Xia, Qing, 2021. "Trust and use of covenants," Research in International Business and Finance, Elsevier, vol. 57(C).
    5. Reuer, Jeffrey J. & Arino, Africa & Mellewigt, Thomas, 2006. "Entrepreneurial alliances as contractual forms," Journal of Business Venturing, Elsevier, vol. 21(3), pages 306-325, May.
    6. Belaya, Vera & Torok, T. & Hanf, Jon Henrich, 2008. "Recognizing the Links between Power and Trust in Managing Supply Chain Relationships," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43925, European Association of Agricultural Economists.
    7. Ayşe Elif Şengün & S. Nazlı Wasti, 2009. "Trust types, distrust, and performance outcomes in small business relationships: the pharmacy--drug warehouse case," The Service Industries Journal, Taylor & Francis Journals, vol. 31(2), pages 287-309, January.
    8. Barendrecht, J.M., 2004. "Cooperation in transactions and disputes : A problem-solving legal system," Discussion Paper 2004-003, Tilburg University, Tilburg Law and Economic Center.

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    More about this item

    Keywords

    contract; governance; inter-organizational relations; trust;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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