Trust and delegation: Theory and evidence |
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| Institution: | 1. School of Business and Management Sciences, Istanbul Medipol University, Kavac?k Mahallesi Ekinciler Caddesi No. 19, 34810 Beykoz-Istanbul, Turkey;2. Department of Economics and Business, Aarhus University, Fuglesangs Allé 5, DK-8200 Aarhus V, Denmark;1. National Institute of Public Finance and Policy, New Delhi, India;2. Consulting Editor at Mint, HT Media, New Delhi, India;1. Department of Economics, Union College, 807 Union Street, Schenectady NY, 12308, USA;2. Department Finance and Economics, Box 9580, 312F McCool Hall, Mississippi State University, Mississippi State, MS, 39762, USA;1. University of Gothenburg, Gothenburg, Sweden;2. University of Siegen, Hölderlinstr. 3, 57076 Siegen, Germany |
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| 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 economic sophistication. |
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