Trustworthiness as an Economic Asset
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Trust as an Asset
Sabel’s (1993) notion of trust centers on the mutual confidence that parties to an
economic transaction will not exploit one another when one or both of the parties
are vulnerable to opportunism. This mutual assurance directed towards economic
behavior develops over time through daily observations. A shared understanding
develops to the point that short-term economic interests lose their absolute
motivational authority in decision making. A sense of duty and mutual depen-
dence grows stronger, thereby promoting a business environment of risk taking
and entrepreneurship under uncertainty.
Kreps (1990) extends this notion of trust as a tool for managing the unforeseen
to a theory of the business firm centering on reputation as the defining
characteristic of the organization. Emerging from noncooperative game theory,
this theory of reputation relies on the empirical reality of contingencies in daily
business life. Successful firms adapt to unforeseen events efficiently and compet-
itively. Often decisions made under uncertainty and time constraints rely on a
principle or focal point to guide the choice. Trustworthiness can serve the role of
a guiding decision principle. So a corporate culture develops around a trust-based
focal point; it is observable by others, and a reputation develops. In Kreps’ (1990)
design, the business firm is not a production function nor a governance structure,
but rather an intangible object bearing a trustworthy reputation.
Trustworthy behavior is observable in economic transactions: repeated trans-
actions reveal the firm’s focal point, and a reputation is formed. Burchell and
Wilkinson, 1997) noted that firms with a reputation that they “do what they say
they will do” reduce transaction and monitoring costs for their trading partners.
These lower costs are not inconsequential, as revealed in the willingness of these
trading partners to pay slight price premiums and work out disagreements on a
mutually satisfactory basis to maintain the beneficial relationship.
Incomplete contracts predominate in business. A mutual understanding of a
trustworthy reputation creates a trading environment that handles ex post facto
contingencies efficiently and effectively. Contracting parties place value on the
knowledge that ex post facto negotiations will be handled fairly, quickly, and
without the threat of holdup.
The presence of trust creates value for the firm because the firm, with a high
level of assurance, can make decisions today that will not be transacted until a
later time (Zajac and Olsen, 1993). Increased flexibility in volatile market
conditions increases the competitiveness of the business in economic upturns and
downturns. First-mover business commitments and financial investments can be
made in search of economic rents with a high level of assurance that future
commitments will be honored.
But is trustworthiness an economic asset? Generally we refer to assets as
resources that create benefits for the firm. Asset value is measurable, in most