The effects of formal and informal contracts on interpersonal trust

This paper uses two laboratory experiments to investigate the effects of contracts on interpersonal trust. We predict that the use of binding contracts to promote or mandate cooperation will lead interacting parties to attribute others' cooperation to the constraints imposed by the contract rather than to the individuals themselves, thus reducing the likelihood of trust developing. We also predict that, although non-binding contracts may not generate as much initial cooperation as binding contracts, they will generate personal rather than situational attributions for any cooperation that results and will therefore not interfere with trust development. Two experiments investigated the effects of the use and removal of binding and non-binding contracts. When binding contracts that were previously allowed were no longer allowed or no longer chosen, trust dropped significantly. In contrast, non-binding contracts led to considerable cooperation, and their removal reduced trust less than removing binding contracts. Behavioral and perceptual data suggest that non-binding contracts lead to personal attributions for cooperation and thus may provide an optimal basis for building interpersonal trust in a variety of situations.