Trust as a Governance Mechanism in Inter-Firm Relations — Conceptual Considerations

Abstract

Although there is general agreement in the literature of trust being a transaction-cost efficient means of governance, scholars are far less harmonious as to what trust actually is. This analysis examines and provides clarity to the concept and to the role of trust as a governance mechanism in the specific context of inter-firm relations by addressing three central aspects in the current debate: firstly, whether trust is a calculative decision or habitual behaviour; secondly, where the limits of trust are compared to alternative governance mechanisms; and thirdly, whether trust is based on self-interest or altruism.