This paper analyzes the role of trust in facilitating efficient exchange relations when agents are vulnerable to opportunistic behavior. Two distinct mechanisms suporting trust are distinguished: self-interested trust (SIT) which is foward-looking, and socially-oriented trust (SOT) which has its...

Although there has been enormous development of the theory of efficient contracts in the last 20 years, empirical tests were slow to come. However, over the last 10 years, a considerable body of evidence has accumulated, particularly in relation to contracts between firms. This paper develops a...

Empirical work has failed to keep pace with recent advances in transaction cost theory and the theory of contract. The first econometric analysis of its kind is reported by using a new data set of small subcontractors making specific inputs for customers in the engineering industry. The use of...

Current theories of the vertical limits to firm size emphasize the consequences of opportunistic behavior by managers. The authors introduce opportunistic wage setting by labor unions and trace the implications for profit and investment in specific assets. Although subcontracting to an...