Trust and efficiency
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Agency problems within the firm are a significant hindrance to efficiency. We propose trust between coworkers as a superior alternative to the standard tools used to mitigate agency problems: increased monitoring and incentive-based pay. We model trust as mutual, reciprocal altruism between pairs of coworkers and show how it induces employees to work harder, relative to those at firms that use the standard tools. In addition, we show that employees at trusting firms have higher job satisfaction, and that these firms enjoy lower labor cost and higher profits. We conclude by discussing how trust may also be easier to use within the firm than the standard agency-mitigation tools. © 2002 Elsevier Science B.V. All rights reserved.
Published Version (Please cite this version)10.1016/S0378-4266(02)00191-7
Publication InfoChami, R; & Fullenkamp, C (2002). Trust and efficiency. Journal of Banking and Finance, 26(9). pp. 1785-1809. 10.1016/S0378-4266(02)00191-7. Retrieved from https://hdl.handle.net/10161/2040.
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Professor of the Practice of Economics
Professor Fullenkamp specializes in the investigation of financial market development and regulation of financial markets. His projects often involve the exploration of such variables as immigrant worker remittances, economic policy, and the development of countries. His completed papers have appeared in various leading academic journals, including The Cato Journal, the Journal of Banking and Finance, the Review of Economic Dynamics, and the Review of Economics and Statistics. Titles of his p