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Impersonal Trust in B2B Electronic Commerce: A Process View 247 transactions. Most IOIS support the following market-making functions: identification, selection, execution and integration (Choudhury et al., 1998). Moreover, B2B exchanges provide some trust-building mechanisms that are proposed to act as antecedents of impersonal trust. Some antecedents can invoke multiple trustbuilding processes, and each antecedent represents a different method of developing impersonal trust through these basic processes. Accreditation Accreditation or prequalification is defined as efforts undertaken ex ante to verify a firm’s capability to perform as expected (Heide and John, 1990). The idea of accreditation makes sense only in a world with uncertainty and risk; in this sense, accreditation is a type of market signaling activity. Adverse selection problems can be managed by implementing qualifications processes that identify potential trading firms ex ante that have the skills necessary to transact in a B2B exchange (Bergen, Dutta and Walker, 1992). Accreditation may also take the form of screening by known track records; for example, e-steel.com (<strong>www</strong>.e-steel.com), a B2B exchange for trading steel, requires all potential participants to have prior trading experience and letters of reference from previous trading partners in order to register in its marketplace. Accreditation could be ascertained by a third-party B2B exchange, which may become a reliable means of characterizing firms. Accreditation triggers the capability process to assess a firm’s capability to fulfill its promises, since qualification efforts can screen out incompetent firms. In this regard, accreditation is a signal that reduces adverse selection problems. Moreover, if a firm has information whether organizations are accredited, trust could be granted based on a firm’s history and reputation. Accreditation is used as a surrogate of reputation for competence, which is transferable to other firms in a B2B exchange. Therefore, the transference process is also triggered by accreditation efforts. In sum, impersonal trust is associated with accreditation through inducing the capability and transference processes. Feedback Research in game theory has shown that a properly designed third-party system can be an effective for assuring cooperation (Kandori, 1992). By introducing an appropriate feedback mechanism, each firm is transformed into a long-term player who conducts repeated transactions, constraining them into cooperative behavior. If there is a repeated play and an indeterminate ending point, formal analysis shows that organizations may arrive at a stable cooperative outcome (Radner, 1986). The feedback mechanism in many B2B exchanges is similar in nature to the suitable mechanism of trust presented by Lahno (1995). Given such Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
248 Pavlou mechanism, firms are informed about other firm’s past behavior and they are able to choose them. Hence, the probability of finding partners depends on their past behavior. On the basis of this dependency, only cooperative conduct pays in the long run; hence, rational firms tend to act trustworthy. This dependency engenders trust by triggering the calculative process, following a sober assessment that a firm’s benefits of cheating are greater than the costs of lost transactions. Feedback may also be regarded as a surrogate (signal) of good reputation (Pavlou and Ba, 2000), which is an important antecedent of trust in buyer-seller relationships (Anderson and Weitz, 1989). Therefore, reputable firms would have greater incentives to cooperate since they have a better feedback to protect than non-reputable firms do, and they are more likely to act ethically (Telser, 1980). Following the same argument, firms would eminently value long and unblemished history, since more organizations are more unlikely to destroy a good name to exploit a single transaction. Therefore, feedback triggers the transference process of engendering trust, where firms infer trustworthiness through feedback from other firms participating in a B2B exchange. Feedback mechanisms provide both signals of past experience, and also incentives for cooperation. Consequently, feedback is associated with impersonal trust by triggering both the calculative and transference processes. Monitoring In B2B exchanges, monitoring may have two aspects. First, a third-party authority monitors all interfirm transactions and assures that everything is performed in accordance with the agreed terms. In case of a problem, a neutral authority attempts to solve the issue to the satisfaction of both firms, or in accordance with the prearranged agreement. Second, a third-party authority can assure that the quality of all products exchanged is in agreement with the preapproved specifications. For example, independent contractors offer quality-assurance services to the B2B exchange of Chemconnect.com (<strong>www</strong>.chemconnect.com). Therefore, agency risks of moral hazard are minimized by monitoring that discourages opportunistic behavior. B2B exchanges may continually monitor the trading activity, convey sanctions to inappropriate trading behavior and punish any wrongdoing. Thirdparty monitoring provides the incentives for firms to engage in cooperative and honest practices. Therefore, the calculative process suggests that trust can be built when a B2B exchange monitors the transaction if the costs of opportunistic behavior will be higher than the benefits from cheating. Given proper government, monitoring provides the incentives for firms to engage in cooperative practices since simple calculation would suggest that the costs of opportunistic behavior would exceed Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Acquisition Editor: Mehdi Khosrow-P
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The Economic and Social Impacts of
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vi Preface E-commerce is not new, t
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