Trust and Political Economy: Institutions and the Sources of Interfirm Cooperation

Posted: 17 Nov 2009

Date Written: 2005

Abstract

It is difficult for political science theories of trust and cooperation to account for the radical levels of dis-integration found in classical industrial districts. However, the existence of apparently economically irrational forms of trust in the political economy, as well as the failure of political culture theory to explain why high-trust forms of production can be found in a low-trust country, can be explained by institutions.Simply put, if institutions have important independent effects on trust and cooperation, variation in institutions will be associated with variations in trust between actors. Two case studies of cooperation between firms in industrial districts are used to test this hypothesis.The two districts studied were the packaging machinery district in Bologna, Italy, and the machine tool district of Stuttgart, Germany.In Bologna, informal institutions gave actors incentives to behave in a trustworthy manner and led to the dissemination of information, which in turn allowed actors to trust each other.In the German case study, the absence of informal institutions made it difficult for firms to trust each other enough to cooperate through the kinds of extensive subcontracting found in Italy.When German firms did rely on subcontracting, it appeared to involve formal institutions. Taken together, the case studies support the hypothesis: a rational choice institutionalist approach provides a good explanation of observed patterns of cooperation. (SAA)

Keywords: Trust relationships, Machine tool industry, Interfirm alliances, Institutional collaboration, Subcontracts

Suggested Citation

Farrell, Henry, Trust and Political Economy: Institutions and the Sources of Interfirm Cooperation (2005). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1506784

Henry Farrell (Contact Author)

Max-Planck Project Group ( email )

Common Goods: Law, Politics and Economics
Poppelsdorfer Allee 45
D-53115 Bonn
Germany
(++49 228) 91416 - 27 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
276
PlumX Metrics