Trust and efficiency

Published

Journal Article

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.

Full Text

Duke Authors

Cited Authors

  • Chami, R; Fullenkamp, C

Published Date

  • August 23, 2002

Published In

Volume / Issue

  • 26 / 9

Start / End Page

  • 1785 - 1809

International Standard Serial Number (ISSN)

  • 0378-4266

Digital Object Identifier (DOI)

  • 10.1016/S0378-4266(02)00191-7

Citation Source

  • Scopus