Contracts, opportunism and trust: Self-interest and social orientation

This paper analyses the role of trust in facilitating efficient exchange relations when agents are vulnerable to opportunistic behaviour. Two distinct mechanisms supporting trust are distinguished: self-interested trust, SIT, which is forward-looking, and socially-oriented trust, SOT, which has its roots in the past. The former is the only source of trust recognised in the mainstream economics literature, while the latter draws heavily from sociology. We develop the implications of isolated and of repeated exchange for the existence of SIT or SOT, and for the role of formal contracts in exchange relations. The paper concludes with a discussion of the feasibility of empirical testing to distinguish SIT from SOT.