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International Food and Agribusiness Management Review Vol. 2/No. 2/1999
exchange but can be transformed over time into an economic asset producing
value for the firm. The business’ reputation may be more important for sustained
profitability than the firm’s production technology (Sen, 1993). Yet skeptics in the
academic and business communities have questioned the empirical validity of
trust or social capital as useful decision variables or management concepts
(Williamson, 1993; Gardner, 1995). Our analytical models of transactions
between nameless people and firms have served economists well, according to
these critics. Trust only has a peripheral and minor role to play in an economy
characterized by self-interested calculativeness.
Recent business management literature has taken exception to identity-less
exchanges. Michalos (1990) argued that trust is an attitude that allows decision
makers to be vulnerable to harm in the interest of a perceived benefit. This
risk-taking lubricant sustains the workings of a market economy. In the world of
work, managers depend on trust continuously in their day-to-day decision making,
according to Shapiro et al. (1992) where trust-based decisions are the rule rather
than the exception; a “treachery can pay” attitude exists in business but is not
dominant. Fukuyama (1995) claimed that countries with higher levels of trust are
more competitive in the global economy characterized by uncertainty. Trust is a
risk management tool, reducing the interaction costs of doing business and
creating a strategic advantage for firms within a country. The general business
sector has discovered that trusting employees (Handy, 1995), suppliers/buyers
(Kumar, 1996), and alliance partners (Nooteboom et al., 1997) leads to compet-
itive advantages that outweigh potential risks associated with opportunism
(Williamson, 1985).
A more volatile competitive environment for agribusiness has created renewed
interest in firm-level risk management (Boehlje and Lins, 1998). When sources of
risk are analyzed and management responses proposed, the prevalence of
relationship-centered challenges and opportunities is striking. In Boehlje and
Lin’s (1998) taxonomy of risks facing agribusiness firms, one half of the risk
sources contained identity-based relationships where trust could serve as a
governance or management tool to reduce the risk associated with that relation-
ship.
We argue in this article that trust is a productive, economic asset for the
business firm, not unlike information and knowledge, which appreciates in value
through use. Using an exploratory, multiple-case study research design, we
discover that selected agribusiness managers use a portfolio of governance
mechanisms, including strong-form trust. A well-managed portfolio reduces
transaction costs and creates competitive advantages for these firms. These
preliminary results also support greater use of game theory, contract design,
hierarchy analysis, and social capital in our agribusiness classrooms and research
programs.