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Edited by Reinhard Bachmann and Akbar Zaheer
Chapter 17: An Ethical Analysis of the Trust Relationship
Sanjay Banerjee, Norman E. Bowie and Carla Pavone Introduction Discussions of trust and trustworthiness are under intense discussion in management. Both practitioners and academics are parties to the conversation. With respect to the analysis of these two concepts, especially in a business context, most discussants adopt either an economic analysis of the concept or a sociological analysis.1 Jones and Bowie (1998) have argued that neither analysis fully captures the nature of the concepts. An economic account of trust looks at the conditions under which it is rational (in one’s selfinterest) to trust. The economic account also emphasizes the eﬃciency of trust. A growing literature of trust underscores its importance to economic life (e.g. Gambetta, 1988; Misztal, 1996; Rousseau et al., 1998; Smith et al., 1995). Trust seems to be beneﬁcial to ﬁrms and organizations: it lowers agency and transaction costs (Frank, 1988; Jones, 1995), promotes eﬃcient market exchanges (Arrow, 1974; Smith et al., 1995), improves cooperation (Mayer et al., 1995; Ring and Van de Van, 1992; Smith et al., 1995) and indeed enhances ﬁrms’ ability to adapt to complexity and change (Korsgaard et al., 1995; McAllister, 1995). Trust also is described as an essential ingredient for innovation (Hosmer, 1994) and scientiﬁc collaboration. Flores and Solomon (1998, p. 208) agree that a strictly economic deﬁnition of trust is inadequate and that, at its core, trust is an ethical concept: Economic approaches to trust, while well-intended and pointing in the right direction, are dangerously incomplete and misleading....
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