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The Meaning Of Trust
by John Humphrey

The many definitions of trust have two core elements: an agent's acceptance of risk from the actions of others, and the expectation that the 'partner' will not take advantage of the opportunities opened up by the agent's acceptance of risk. One general definition of trust is provided by Baier, who defines it as 'accepted vulnerability to another's possible but riot expected ill will (or lack of good will) toward one' (Baier 1986: 235).' This type of definition is often interpreted narrowly, and attention is focused on the problems of cheating and malfeasance-breaking explicit promises. However, two other types of trust are important in the context of supplier relations. First, there is trust in the ability of the supplier to fulfill commitments. Sako labels this 'competence trust' (1992: 37-8). Secondly, trust is involved when companies make investments in transaction-specific assets in the belief that: (i) the relationship will continue into the future even though no formal commitments can be made, and (ii) the partner will not take advantage of these investments and will behave responsibly when adaptations to contracts and relationships take place.' We will refer to this as 'goodwill trust', even though this falls short of the open-ended, moral commitment to which Sako refers. Both competence trust and goodwill trust involve a decision to make oneself vulnerable to the action of another because one has reasons for believing that the negative outcome will not materialize. Precisely because a judgment about the 'other' is being made, there would be cause for regret if the judgment turned out to be wrong (Luhmann 1988: 98).

The question of trust arises from the element of risk in economic transactions. Under perfect competition, economic exchanges do not involve risk. Agents can assume that contracts will be honoured, and risk is ruled out by the assumptions of candid rationality and perfect information. When these assumptions are abandoned, the questions of risk and trust arise. Entering into an economic exchange exposes the agent to risks arising from the action of others. If these risks are uncontrollable, then exchange is reduced, paralysed, or rendered costly by the need to take precautions. If the 'other' can be trusted, exchange is facilitated.

Beyond these basic points, however, there is considerable disagreement and confusion about trust. In this section, two issues will be addressed: (i) what constitutes trust? and (ii) how can inter-firm trust be developed in situations where it is absent? The first question will be examined through a discussion of rational choice and shared meanings as bases for trust. The second will be examined through a discussion of personal trust.

Berkman Center for Internet & Society