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Globalization and Trust: Theory and Evidence from Cooperatives

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  • Ramon Casadesus-Masanell
  • Tarun Khanna

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 Mondrag??n Corporaci??n Cooperativa is used to motivate assumptions and illustrate the results.

Suggested Citation

  • Ramon Casadesus-Masanell & Tarun Khanna, 2003. "Globalization and Trust: Theory and Evidence from Cooperatives," William Davidson Institute Working Papers Series wp592, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2003-592
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    1. Paranque, Bernard, 2017. "The need for an alternative to shareholder value creation? The Ethomed student experience," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 686-695.
    2. Wilson Majee & Ann Hoyt, 2010. "Are worker-owned cooperatives the brewing pots for social capital?," Community Development, Taylor & Francis Journals, vol. 41(4), pages 417-430, October.
    3. Figueiredo, Vítor & Franco, Mário, 2018. "Wine cooperatives as a form of social entrepreneurship: Empirical evidence about their impact on society," Land Use Policy, Elsevier, vol. 79(C), pages 812-821.
    4. Derek C. Jones & Panu Kalmi, 2009. "Trust, Inequality And The Size Of The Co‐Operative Sector: Cross‐Country Evidence," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 80(2), pages 165-195, June.

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