Trust and efficiency
Abstract
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.
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https://hdl.handle.net/10161/2040Published Version (Please cite this version)
10.1016/S0378-4266(02)00191-7Publication Info
(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.This is constructed from limited available data and may be imprecise. To cite this
article, please review & use the official citation provided by the journal.
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Show full item recordScholars@Duke
Connel Fullenkamp
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
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