On the Reliability of Trusting

This paper presents a model of trust in which a principal chooses either to trust or monitor an agent who, in turn, chooses either to honor or exploit that trust. The principal's decision of whether to trust or monitor is based on the relative temptation an agent faces to exploit the principal's trust, which comprises two elements - the environmental incentives the agent faces and the personal characteristics of the agent. The model is used to develop a reliability condition that the principal uses to assess the likelihood that trust placed in an agent will be honored