Trust, Contract and Relationship Development

TLDR

The article examines the debated relationship between trust and control in inter‑organizational management, noting that prior studies have not clarified whether trust and contract are substitutes or complements, the causal order between them, or how their combinations influence relationship development and outcomes. The study investigates how trust and formal contracts are related. The authors used longitudinal case studies of complex inter‑firm relationships to examine how trust, contract, and relationship outcomes interact. The findings show that trust and contract can act as both complements and substitutes, and that detailed analysis of contract content provides additional insight into their use in inter‑firm relationships.

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 longitudinal 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.