This developmental paper addresses one of the key dilemmas of Agency Theory, specifically how does the principal in a relationship evaluate and assess that the agent in the relationship is conducting themselves in an appropriate manner and behaving in their best interests and with integrity utilising the context of the purchase of a high risk credence product where information asymmetry exists between the principal and the agent.
In such circumstances it is not possible for the principal to use either an outcome based mechanism or information system mechanism as suggested by Eisenhardt (1989) to resolve this dilemma leaving the principal at considerable risk.
This developmental paper proposes that in such circumstances the principal relies upon ‘environmental’ or ‘system’ trust to resolve the dilemma, and in doing so demonstrates that ‘environmental’ or ‘systems’ trust can be seen as interplay between institutional theory and agency theory.
Poole, A. (2017, September). System trust - and interplay between institutional theory and agency theory final submission. Paper presented at British Academy of Management