Discussing the Role of Trust in Behavioral Assumptions of Transaction Cost Theory

Abstract

In its attempts to explain organizations based on their economical approach, transaction cost theory has a unique position among all organizational theories since it derives its assumptions from human behaviors. The basic behavioral assumptions of transaction cost theory are “opportunism” and “bounded rationality.” Transaction cost theory includes a selection of governance mechanisms whose goal is to minimize transaction costs based on the aforementioned behavioral assumptions. This study discusses the notion that not only is “trust” one of the most important aspects of work ethics, but that it is also disregarded by the abovementioned governance mechanisms of transaction cost theory. This study also underlines the importance of building an environment of trust in an organization rather than selecting governance mechanisms under an “opportunist” and “bounded rational” paradigm, as is currently the case in transaction cost theory.