ABSTRACT
Two theoretical perspectives emerged to shape the debate surrounding trust and contracts, transaction cost economics and social embeddedness. An alternative to substitutes is a complementary relationship of trust and formal controls: the joint use of formal controls and trust enables greater management of risk, and thus assurance of expected outcomes. Trust implies that managers can rely on the social structure and quality of relationships to promote confidence that the other party will behave as expected: it is "a positive expectation of the intentions or behaviour of another". Trust is defined as "a positive expectation of the intentions or behaviour of another" and measures qualities that imply the opposite of opportunistic beliefs or self-interested behaviour. A positive pairing of trust is that trust completes the limitations of contracts due to bounded rationality and minimizes the transaction costs incurred by drafting more complete contracts. Trust fosters better contractual specifications of neoclassical contracts.
