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Optimal trust? Uncertainty as a determinant and limit to trust in inter‐firm alliances

Optimal trust? Uncertainty as a determinant and limit to trust in inter‐firm alliances Purpose – This study seeks to investigate a nonlinear relationship between the uncertainty associated with an economic exchange and trust. Design/methodology/approach – This study uses data from 191 respondents representing middle and senior management in the pharmaceutical and biotechnology industry in the USA and Canada to achieve the research purpose. Respondents completed a questionnaire designed to assess their firm's attitude towards their counterpart. A select number of executives were also interviewed. Measures were developed to assess inter‐firm trust, relational intensity and uncertainty. Findings – The study showed that a certain amount of uncertainty is necessary for trust to emerge. Beyond some threshold, however, increases in uncertainty led to a reduction in trust. This midrange proposition suggests that there may be an optimal level of trust. Research limitations/implications – First, the findings show that a focus on the structural aspects of exchange can yield additional understandings of trust. Current research has tended to focus overwhelmingly on relational determinants of trust. Second, the nonlinear relationship between uncertainty and trust should spur additional research on the conditions that lead to trust failure. Finally, the findings may provide a starting point for reconciling two opposing explanations of the governance of economic exchange, namely social exchange and transaction cost theory. The study had some limitations. First, the research used cross‐sectional data and took a snapshot measure of trust. Second, single informants were relied on as the main data source. However, steps were taken to reduce the harmful effects of relying on single informants to collect the data. Practical implications – The study demonstrated that the structure of an exchange could be a limit to the creation of trust. This implies that actors should focus on both behaviors and the nature of the exchange itself to understand when trust is likely to emerge, and the conditions under which trust may fail. The study also suggests that actors should approach trust as one of strategic thinking. There are costs to creating trust and, unless it is determined that trust is important (reasonable levels of uncertainty), actors should not invest in trust creation. At the same time, beyond a certain level of uncertainty, it will be prudent to think of other control measures to reduce opportunism in an exchange relationship. Originality/value – This study has shown that the structure of an exchange, specifically uncertainty, provides a useful conceptual link to trust. The present research bridged some of the gaps in the understanding of inter‐organizational trust by proposing and empirically testing a midrange hypothesis linking uncertainty and trust. The study also increases understanding of the structural limits to trust. This study may be one of the first to test this midrange hypothesis. The study may also provide groundwork for linking two opposing theories on the governance of exchange. Findings from this research should prove useful to management researchers and practitioners. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Leadership & Organization Development Journal Emerald Publishing

Optimal trust? Uncertainty as a determinant and limit to trust in inter‐firm alliances

Leadership & Organization Development Journal , Volume 27 (7): 17 – Oct 1, 2006

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Publisher
Emerald Publishing
Copyright
Copyright © 2006 Emerald Group Publishing Limited. All rights reserved.
ISSN
0143-7739
DOI
10.1108/01437730610692407
Publisher site
See Article on Publisher Site

Abstract

Purpose – This study seeks to investigate a nonlinear relationship between the uncertainty associated with an economic exchange and trust. Design/methodology/approach – This study uses data from 191 respondents representing middle and senior management in the pharmaceutical and biotechnology industry in the USA and Canada to achieve the research purpose. Respondents completed a questionnaire designed to assess their firm's attitude towards their counterpart. A select number of executives were also interviewed. Measures were developed to assess inter‐firm trust, relational intensity and uncertainty. Findings – The study showed that a certain amount of uncertainty is necessary for trust to emerge. Beyond some threshold, however, increases in uncertainty led to a reduction in trust. This midrange proposition suggests that there may be an optimal level of trust. Research limitations/implications – First, the findings show that a focus on the structural aspects of exchange can yield additional understandings of trust. Current research has tended to focus overwhelmingly on relational determinants of trust. Second, the nonlinear relationship between uncertainty and trust should spur additional research on the conditions that lead to trust failure. Finally, the findings may provide a starting point for reconciling two opposing explanations of the governance of economic exchange, namely social exchange and transaction cost theory. The study had some limitations. First, the research used cross‐sectional data and took a snapshot measure of trust. Second, single informants were relied on as the main data source. However, steps were taken to reduce the harmful effects of relying on single informants to collect the data. Practical implications – The study demonstrated that the structure of an exchange could be a limit to the creation of trust. This implies that actors should focus on both behaviors and the nature of the exchange itself to understand when trust is likely to emerge, and the conditions under which trust may fail. The study also suggests that actors should approach trust as one of strategic thinking. There are costs to creating trust and, unless it is determined that trust is important (reasonable levels of uncertainty), actors should not invest in trust creation. At the same time, beyond a certain level of uncertainty, it will be prudent to think of other control measures to reduce opportunism in an exchange relationship. Originality/value – This study has shown that the structure of an exchange, specifically uncertainty, provides a useful conceptual link to trust. The present research bridged some of the gaps in the understanding of inter‐organizational trust by proposing and empirically testing a midrange hypothesis linking uncertainty and trust. The study also increases understanding of the structural limits to trust. This study may be one of the first to test this midrange hypothesis. The study may also provide groundwork for linking two opposing theories on the governance of exchange. Findings from this research should prove useful to management researchers and practitioners.

Journal

Leadership & Organization Development JournalEmerald Publishing

Published: Oct 1, 2006

Keywords: Trust; Pharmaceuticals industry; Canada; Partnership; United States of America

References

  • The Evolution of Cooperation
    Axelrod, R.
  • Trustworthiness as a source of competitive advantage
    Barney, J.B.; Hansen, M.H.
  • Deceitful behaviors of alliance partners: potential and prevention
    Das, T.K.
  • Specialized supplier networks as a source of competitive advantage: evidence from the auto industry
    Dyer, J.H.
  • Social exchange theory
    Emerson, R.
  • Joint venture and competitive strategy
    Harrigan, R.K.
  • Network data and measurement
    Marsden, P.V.
  • Do formal contracts and relational governance function as substitutes or complements?
    Poppo, L.T.; Zenger, T.
  • Business on a handshake
    Shapiro, D.L.; Sheppard, B.H.; Cheraskin, L.
  • Relational governance as interorganizational strategy: an empirical test of the role of trust in economic exchange
    Zaheer, A.; Venkatraman, N.

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