Shapiro, Impersonal Trust

Impersonal Trust
arises when social-control measures derived from social ties and direct contact between
principal and agent are unavailable, when faceless and readily interchangeable individual or
organisational agents exercise considerable delegated power and privilege on belhf of principals
who can neither specify, scrutinise, evaluate, nor constrain their performance.
Mark Granovetter
- presented a compeling theoretical commercial for examining the role of concrete
personal relations and structures of such relations in which economic action in modern industrial
society is embedded.
- rejected the assumption of an anonymous marketplace made up of autonomous actors.
Instead he asserts that transactions at all levels of the firm are rife with social connections.
- argued that social relations and the obligations inherent in them rather than generalised
morality or institutional arrangements like contracts or authority structures are mainly responsibly
for the production of trust in economic life.
Two Strategies for minimising risk of functionalist analysis:
1. to recognize that the embeddedness position is less sweeping than either alternative argument
since networks of social relations penetrate irregularly and in differing degrees in different
sectors of economic life
2. to insist that while social relations may be a necessary condition for trust and trustworthy
behaviour, they are not sufficient to guarantee these and may even provide occasion and
means for malfeasance and conflict on a larger scale than in their absence. (sources of trust
may ironically provide opportunity for abuse)
The Social Organization of Agency
- many regard trust as:
1st sense. property either of individuals or
2nd sense. reprocities of interpersonal relationships.
3rd sense. a kind of social organisation which has two elements:
a) idea of agency - people or orgs act on behalf of others
b) risky investment of future contingency, inherent in agency relationships.
For the 1st and 2nd senses, personal embeddedness represents a necessary condition of trust.
For our purposes, we use trust in the 3rd Sense. As social relationship where principals invest
resources, authority, or responsibility in another to act on their behalf for some uncertain future
return.
Agency Relationships
- accomodate complex forms of organisation.
- bridge social and physical distances that otherwise limit social exchange.
- most commonplace forms of agency accompany role specialisation and the segmentation
of tasks into discrete operations associated with social differentiation and division of labor.
- specialization and differentiation require that agents be entrusted not only with property
but also with task of information collection.
- constrained by their own specialised role obligations, so they must rely on representations
and assessments of others for information.
- other agency relationships compensate for institutions of secrecy or privacy that protect
data sources and bar investigations by the principals themselves.
SOURCES OF IMPERSONAL TRUST According to Shapiro (1987), impersonal trust is generally
derived from mechanisms such as procedural norms, structural constraints, entry restrictions,
policing mechanisms, social-control specialists and insurance-like arrangements. It arises when
social-control measures derived from social ties and direct contact between the principal and the
agent are unavailable, and when faceless and readily interchangeable individual or organizational
agents exercise considerable delegated power and privilege. ( i took this from the net. ill update it
later, kulang yung file e)

Dillemas of Agency
Niklas Luhmann,
- trust serves to increase the potential of a system for complexity. The potential for complex forms
of social organisations afforded by agency relationships seems infinite. Global exchanges
unencumbered by distance, time, commodity, or familiarity, economic of scope and scale.,
transactional liquidity, expanding temporal possibilities, protection from risk, the magical ability to
create wholes that are greater than the sum of their parts, and a rich material and cultural life.
- The factors above drive principals into agency relationships offer opportunity for agent abuse.
- Trusted individual and organisational agents control property they do not own.
- They have capacity to create wealth and and discretion over the distribution of opportunity.
- Agents create and disseminate information that cannot be verified by its recipients because of
their lack of expertise or access to data.
- Agents create and administer symbolic wealth in exchange for worthless promissory symbols of
potential earnings.
- Trustworthy agents beset by conflicting claims from their various role identities that may
undermine overall fidelity.
How Principals Cope
1. Avoid or limit participation in agency relationships
- keep money in mattress
- forgo benefits of a rich division of labor.
- develop selected expertise to reduce their reliance of agents
- buying out and merging formerly independent agents
- vulnerable economic transactions are internalised within hierarchically organised forms rather
than performed by market processes.
2. Principals attempt to reduce their exposure to agent abuse by spreading their risk.
- banks sell loans to other corporations.
- insurance companies develop reinsurance arrangements.
3. Personalizing the agency relationship by embedding it in structures of social relations.
- limit relationships to known agents or members of their social networks.
- forge agency relationships based on familiarity, trustworthy performance, and a potent array of
informal social control options to punish abuse.
- when faced with choice, individuals and organisations invariably opt to transact with those of
known reputation or whom they have past dealings.
4. Contractual Control
- principals can control the behaviour of agents
- enunciate preferences and priorities, responsibilities and obligations.
Limitations of Contractual Control
1. Specification costs: cant control every agency relationship with contracts
2. Single agents are bound to several principals
3. Norms of agency requires expertise and sophistication.
4. Principals are unable to monitor the performance of contractual commitments