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Globalization and Trust: Theory and Evidence from Cooperatives

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  • Ramon Casadesus-Masanell

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  • Tarun Khanna
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    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 observable ‘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 Mondragón Corporación Cooperativa is used to motivate assumptions and illustrate the results.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp592.pdf
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    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp592.

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    Length: 32 pages
    Date of creation: 09 Mar 2003
    Date of revision:
    Handle: RePEc:wdi:papers:2003-592

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