CONTRACTS, OPPORTUNISM AND TRUST - SELF-INTEREST AND SOCIAL ORIENTATION

This paper analyses the role of trust in facilitating efficient exchan ge relations when agents are vulnerable to opportunistic behaviour. Tw o distinct mechanisms supporting trust are distinguished: self-interes ted trust, SIT, which is forward-looking, and socially-oriented trust, SOT, which has its roots in the past. The former is the only source o f trust recognised in the mainstream economics literature, while the l atter draws heavily from sociology. We develop the implications of iso lated and of repeated exchange for the existence of SIT or SOT, and fo r the role of formal contracts in exchange relations. The paper conclu des with a discussion of the feasibility of empirical testing to disti nguish SIT from SOT.