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International Food and Agribusiness Management Review Vol. 2/No. 2/1999

cases, and this value depreciates over time. Assets have an opportunity cost and
complement or substitute for one another. Even unidentifiable intangible assets,
such as goodwill, can be purchased, amortized, and sold (Welsch et al., 1996).
One determinate of goodwill is reputation, and it is valued, along with the other
goodwill contributors, as the present value of the expected future excess earnings
of the firm. Yet, an unidentifiable, intangible asset is generally not recognized in
accounting records unless it has been paid for in an arm’s length transaction.

Contrary to claims by skeptics, the value of trust, or its “worthwhileness,” can
be measured in business transactions. Dasgupta (1988) uses simple game models
to illustrate this economic value. He argued that trustworthiness is similar to other
assets, such as knowledge and information. However, economists have invested
so little time in measuring and understanding trust that this asset remains on the
periphery of mainstream economics.

Trustworthiness and Competitive Advantage

The culture of a firm is largely determined by the values and beliefs of its past and
present owners and employees, particularly its board of directors and manage-
ment. The importance of trust relationships will vary within and across firms
because of this historical human diversity. In fact, a competitive advantage
associated with trust can only be sustained when the reputation of the firm is not
easily reproduced by other firms, that is, it is not easily imitable (Barney, 1986).
The inability to imitate corporate cultures produces, in part, the heterogeneity in
organizational structure and performance and the opportunity for a trust-based
competitive advantage.

Recognizing that some form of trust exists in all economic transactions, Barney
and Hansen (1994) attempted to categorize three trust relationships that are
observable in business transactions. They argued that weak-form trust is evident
in exchanges with limited opportunity for the exchange partners to take advantage
of one another. Price discovery is nearly costless; quality can be easily evaluated;
little time must be spent in the transaction; and “customer satisfaction is
guaranteed.” Most day-to-day market exchanges fall into this category. Challenges
associated with opportunism, holdups, moral hazard, and adverse selection are minor.

Semistrong-form trust, according to Barney and Hansen (1994), is evident
when a formal or informal governance mechanism exists to facilitate exchanges
when the potential for opportunism is present. Formal forms of governance, such
as contingent claims contracts, sequential contracting, and various forms of
alliances, discourage opportunism. Informal forms of governance would include
a market for reputations and social networks that create incentives for compliance
over time.

Strong-form trust exists between two parties when they know that opportunistic
behavior would violate a commonly shared standard of behavior. In this case the



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