2005_Trustcontractandrelationshipdevelopment_kleinWoolthuis(1).pdf

2005_Trustcontractandrelationshipdevelopment_kleinWoolthuis(1).pdf

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Organization Studies The online version of this article can be found at: DOI: 10.1177/0170840605054594 2005 26: 813 Organization Studies Rosalinde Klein Woolthuis, Bas Hillebrand and Bart Nooteboom Trust, Contract and Relationship Development Published by: On behalf of: European Group for Organizational Studies can be found at: Organization Studies Additional services and information for Email Alerts: Subscriptions: Reprints: Permissions: Citations: at Vrije Universiteit 34820 on March 23, 2011 oss.sagepub.com Downloaded from
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Trust, Contract and Relationship Development Rosalinde Klein Woolthuis, Bas Hillebrand and Bart Nooteboom Abstract This article contributes to the debate on the relation between trust and control in the management of inter-organizational relations. More specifically, we focus on the question how trust and formal contract are related. While there have been studies on whether trust and contract are substitutes or complements, they offer little insight into the dynamic interaction between the two. They fail to answer, first, whether contract precedes trust or follows it, in other words, what causal relationship exists between the concepts; second, how and why trust and contract can substitute or complement each other; and third, how the various combinations of trust and contract affect a relationship’s development and outcome. In search of answers, we conducted longi- tudinal case studies to reveal the relationship between trust, contract and relationship outcome in complex inter-firm relationships. We find trust and contract to be both complements and substitutes and find that a close study of a contract’s content offers alternative insight into the presence and use of contracts in inter-firm relationships. Keywords: trust, contracts, transaction costs, control, inter-organizational relation- ships, longitudinal case study According to classical transaction cost economics (TCE; see Williamson 1975, 1985), relations that entail specific investments create dependence and vulnerability to opportunistic ‘hold-up’. Also, TCE argues that it is impossible to reliably judge possible limits to other people’s opportunism and that trust does not yield a reliable safeguard. From a social science perspective, many people take the view that trust is viable and that it may be an important element in the mitigation of relational risk (e.g. Macaulay 1963; Ouchi 1980; Gambetta 1988; Gulati 1995; McAllister 1995; Chiles and McMackin 1996; Nooteboom 1996). As Knights et al. (2001: 314) note, ‘a long tradition of management thought conceptualizes trust and control as opposing alter- natives’ in which high trust allows for limited formal control and vice versa.
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