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On the Reliability of Trusting


  • Harvey James

    (University of Missouri)


This paper presents a model of trust in which a principal chooses either to trust or monitor an agent who, in turn, chooses either to honor or exploit that trust. The principal's decision of whether to trust or monitor is based on the relative temptation an agent faces to exploit the principal's trust, which comprises two elements – the environmental incentives the agent faces and the personal characteristics of the agent. The model is used to develop a reliability condition that the principal uses to assess the likelihood that trust placed in an agent will be honored.

Suggested Citation

  • Harvey James, 2002. "On the Reliability of Trusting," Microeconomics 0202002, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0202002
    Note: Type of Document - Microsoft Word; prepared on IBM PC; to print on HP; pages: 35; figures: 4. Figures embedded as metafiles in document

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    References listed on IDEAS

    1. Robert H. Frank & Thomas Gilovich & Dennis T. Regan, 1993. "Does Studying Economics Inhibit Cooperation?," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 159-171, Spring.
    2. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-755, September.
    3. Bruno S. Frey & Reto Jegen, 2000. "Motivation Crowding Theory: A Survey of Empirical Evidence," CESifo Working Paper Series 245, CESifo Group Munich.
    4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    5. Valley, Kathleen L. & Moag, Joseph & Bazerman, Max H., 1998. "'A matter of trust':: Effects of communication on the efficiency and distribution of outcomes," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 211-238, February.
    6. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    7. Huang, Peter H & Wu, Ho-Mou, 1994. "More Order without More Law: A Theory of Social Norms and Organizational Cultures," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 390-406, October.
    8. Margaret Levi, 2000. "When good defenses make good neighbours: a transaction cost approach to trust, the absence of trust distrust," Chapters,in: Institutions, Contracts and Organizations, chapter 12 Edward Elgar Publishing.
    9. 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.
    10. Harvey James, 2002. "The Trust Paradox: A Survey of Economic Inquiries Into the Nature of Trust and Trustworthiness," Microeconomics 0202001, EconWPA.
    11. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-595, September.
    12. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 811-846.
      • Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
    13. Huck, Steffen, 1998. "Trust, Treason, and Trials: An Example of How the Evolution of Preferences Can Be Driven by Legal Institutions," Journal of Law, Economics, and Organization, Oxford University Press, vol. 14(1), pages 44-60, April.
    14. James Jr., Harvey S., 2002. "The trust paradox: a survey of economic inquiries into the nature of trust and trustworthiness," Journal of Economic Behavior & Organization, Elsevier, vol. 47(3), pages 291-307, March.
    15. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    16. Harvey James, 1999. "Owner as Manager, Extended Horizons and the Family Firm," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(1), pages 41-55.
    17. Alberto Alesina & Eliana La Ferrara, 2000. "The Determinants of Trust," NBER Working Papers 7621, National Bureau of Economic Research, Inc.
    18. Tullock, Gordon, 1999. "Non-prisoner's dilemma," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 455-458, July.
    19. Neil Kay, 1996. "The Economics of Trust," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 3(2), pages 249-260.
    20. Harvey S. James Jr, 2000. "Separating contract from governance," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 47-61.
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    Cited by:

    1. James, Harvey S., Jr., 2002. "The Effect Of Trust On Public Support For Biotechnology: Evidence From The U.S. Biotechnology Study, 1997-1998," 2002 Annual meeting, July 28-31, Long Beach, CA 19651, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. James, Harvey S., Jr. & Henrickson, Mary K., 2007. "Perceived Economic Pressures and Farmer Ethics," Working Papers 7361, University of Missouri Columbia, Department of Agricultural Economics.
    3. Harvey S. James, 2003. "The effect of trust on public support for biotechnology: Evidence from the U.S. Biotechnology Study, 1997-1998," Agribusiness, John Wiley & Sons, Ltd., vol. 19(2), pages 155-168.
    4. James, Harvey S., Jr., 2002. "Finding Solutions To Ethical Problems In Agriculture," Working Papers 26046, University of Missouri Columbia, Department of Agricultural Economics.
    5. Renner, Elke & Tyran, Jean-Robert, 2004. "Price rigidity in customer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 575-593, December.
    6. Harvey S. James Jr. & Michael E. Sykuta, 2006. "Farmer trust in producer- and investor-owned firms: Evidence from Missouri corn and soybean producers," Agribusiness, John Wiley & Sons, Ltd., vol. 22(1), pages 135-153.

    More about this item


    trust; trustworthiness; principal-agent relationship; moral hazard; transaction costs; monitoring;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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