This article 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.
Alesina, Alberto
and Eliana La Ferrara. 2000. `The Determinants of Trust.' Working paper no. 7621. National Bureau of Economic Research.
2.
Arrow, Kenneth J.1973. Information and Economic Behavior. Stockholm: Federation of Swedish Industries.
3.
Arrow, Kenneth J.1974. The Limits of Organization. New York: W. W. Norton.
4.
Baier, Annette
, 1986. `Trust and Antitrust.' Ethics96: 231-260.
5.
Cohen, Jeffrey P.
and Harvey S. James, Jr.2001. `If Teaching Economics Discourages Cooperation, Can the Damage Be Undone?' Working paper, Department of Economics, University of Hartford.
6.
Coleman, James S.1990. Foundations of Social Theory. Cambridge, MA: Harvard University Press.
7.
Dasgupta, Partha
. 1988. `Trust as a Commodity.' In Trust: Making and Breaking Cooperative Relations, ed. D. Gambetta, pp. 49-72. New York: Basil Blackwell.
8.
Dawes, Robyn M.
and Richard H. Thaler. 1988. `Cooperation.' Journal of Economic Perspectives2(3): 187-197.
9.
Frank, Robert H.
, Thomas D. Gilovich and Dennis T. Regan. 1993. `Does Studying Economics Inhibit Cooperation?' Journal of Economic Perspectives7(2): 159-171.
10.
Frey, Bruno S.
and Reto Jegen. 1999. `Motivation Crowding Theory: A Survey of Empirical Evidence.' Working paper no. 26. Institute for Empirical Research in Economics, University of Zurich.
11.
Frey, Bruno S.
and Felix Oberholzer-Gee. 1997. `The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out.' American Economic Review87(4): 746-755.
12.
Glaeser, Edward
, David I. Laibson, Jose A. Scheinkman and Christine L. Soutter. 2000. `Measuring Trust.' Quarterly Journal of Economics115(3): 811-846.
13.
Gorski, Philip
. 1993. `The Protestant Ethic Revisited: Disciplinary Revolution and State Formation in Holland and Prussia.' American Journal of Sociology99(2): 265-316.
14.
Güth, Werner
and Hartmau Kliemt. 1994. `Competition or Co-operation: On the Evolutionary Economics of Trust, Exploration and Moral Attitudes.' Metroeconomica45(2): 155-187.
15.
Hardin, Russell
. 1993. `The Street-level Epistemology of Trust.' Politics and Society21(4): 505-529.
16.
Heiner, Ronald A.1983. `The Origin of Predictable Behavior.' American Economic Review73(4): 560-595.
17.
Holmstrom, Bengt
. 1982. `Moral Hazard in Teams.' Bell Journal of Economics13: 324-340.
18.
Holmstrom, Bengt
and Paul Milgrom. 1991. `Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design.' Journal of Law, Economics, and Organization7: 24-52.
19.
Huang, Peter H.
and Ho-Mou Wu. 1994. `More Order without More Law: A Theory of Social Norms and Organizational Cultures.' Journal of Law, Economics, and Organization10(2): 390-406.
20.
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 Organization14(1): 44-60.
21.
James, Harvey S. Jr.1999a. `What Can the Family Contribute to Business? Examining Contractual Relationships.' Family Business Review12(1): 61-72.
22.
James, Harvey S. Jr.1999b. `Owner as Manager, Extended Horizons and the Family Firm.' International Journal of the Economics of Business6(1): 41-55.
23.
James, Harvey S. Jr.2000. `Separating Contract from Governance.' Managerial and Decision Economics21: 47-61.
24.
James, Harvey S. Jr.2002. `The Trust Paradox: A Survey of Economic Inquiries Into the Nature of Trust and Trustworthiness.' Journal of Economic Behavior and Organization47(3): 291-307.
25.
Jensen, Michael C.
and William H. Meckling. 1976. `Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.' Journal of Financial Economics3: 303-360.
26.
Kay, Neil M.1996. `The Economics of Trust.' International Journal of the Economics of Business3(2): 249-261.
27.
Koford, Kenneth
. 2000. `Monitoring in Organizations When Agents Vary in Ethical Standards.' Paper presented at the Eastern Economic Association meeting, Washington, DC, March, 2000.
28.
Kreps, David M.1990. `Corporate Culture and Economic Theory.' In Perspectives in Positive Political Economy, eds. J. Alt and K. Shepsle. New York: Cambridge University Press.
29.
Lahno, Bernd
. 1995. `Trust and Strategic Rationality.' Rationality and Society7(4): 442-464.
30.
Leibenstein, Harvey
. 1987. `On Some Economic Aspects of a Fragile Input: Trust.' In Arrow and the Foundations of the Theory of Economic Policy, ed. G. R. Feiwel, pp. 600-612. New York: New York University Press.
31.
Levi, Margaret
. 2000. `When Good Defenses Make Good Neighbors: A Transaction Cost Approach to Trust, the Absence of Trust and Distrust.' In Institutions, Contracts, and Organizations: Perspectives from New Institutional Economics, ed. C. Menard, pp. 137-157. Northampton, MA: Edward Elgar Publishing.
32.
North, Douglass C.1990. Institutions, Institutional Change and Economic Performance. New York: Cambridge University Press.
33.
Quigley-Fernandez, B.
, F.S. Malkis and J.T. Tedeschi. 1985. `Effects of First Impressions and Reliability of Promises on Trust and Cooperation.' British Journal of Social Psychology24: 29-36.
34.
Snijders, Chris
and Gideon Keren. 1999. `Determinants of Trust.' In Games and Human Behavior: Essays in Honor of Amnon Rapaport, ed. D.V. Budescu, I. Erev and R. Zwickm, pp. 355-385. Mahwah, NJ: Lawrence Erlbaum Associates.
35.
Tullock, Gordon
. 1999. `Non-prisoner's Dilemma.' Journal of Economic Behavior and Organization39: 455-458.
36.
Valley, Kathleen L.
, Joseph Moag and Max H. Bazerman. 1998. ` “A Matter of Trust”: Effects of Communication on the Efficiency and Distribution of Outcomes.' Journal of Economic Behavior and Organization34: 211-238.
37.
Williamson, Oliver E.1985. The Economic Institutions of Capitalism. New York: Free Press.
38.
Williamson, Oliver E.1993. `Calculativeness, Trust, and Economic Organization.' Journal of Law and Economics36: 453-486.
