Trust, Contract and Relationship Development

This article contributes to the debate on the relation between trust and control in the management of inter-organizational relations. More specifically, we focus on the question how trust and formal contract are related. While there have been studies on whether trust and contract are substitutes or complements, they offer little insight into the dynamic interaction between the two. They fail to answer, first, whether contract precedes trust or follows it, in other words, what causal relationship exists between the concepts; second, how and why trust and contract can substitute or complement each other; and third, how the various combinations of trust and contract affect a relationship’s development and outcome. In search of answers, we conducted longitudinal case studies to reveal the relationship between trust, contract and relationship outcome in complex inter-firm relationships. We find trust and contract to be both complements and substitutes and find that a close study of a contract’s content offers alternative insight into the presence and use of contracts in inter-firm relationships.