Trust and delegation: Theory and evidence

Abstract

Social trust is associated with good economic performance, but little is known about the transmission mechanisms connecting trust and performance. We explore the effect of trust on delegation decisions. In a theoretical framework, we note that delegation is a low-cost option when management decisions can be implemented without monitoring. This option is, however, risky and more likely to be profitable in higher-trust environments. In a set of cross-country regressions, we show a strong association between trust and delegation, which is increasing in of sophistication. Journal of Comparative Economics 45 (2017) 644-657. School of Business and Management Sciences, Istanbul Medipol University, Kavacik Mahallesi Ekinciler Caddesi No. 19, 34810 Beykoz-Istanbul, Turkey; Department of Economics and Business, Aarhus University, Fuglesangs Alle 5, DK-8200 Aarhus V, Denmark.