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Social embedding as a solution to a control problem? Evidence from Vietnamese small business* - page 12 / 52





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“a contract under which one or more persons (the principal(s)) engage another person (the

agent) to perform some service on their behalf which involves delegating some decision-

making authority to the agent (Jensen and Meckling 1976).” The degree to which agents

comply with the wishes of the principals depends upon the relative resources of each

including 1) the degree to which their interests coincide, 2) the agent’s ability to strategically

control the flow of relevant information to the principal, 3) the ability of the principal to

control the agent's behavior, and 4) the capacity of agents to engage in collective action.

Socially embedding exchange relationships in common activities addresses these issues

through the increased implied mutual contact and supervision which allows both increased

opportunity for communication and increased opportunity to observe behavior. Taken

together these increase the flow of information and decrease the possibility of withholding

information while increasing the possibilities of direct supervision and therefore control of

the agent’s behavior. The increased contact decreases the opportunity for agents to engage in

collective action against the interests of the principal.3 One implication of this form of

embedding, if it is effective, is that those without long histories can still be advantaged by

social embedding.

The basis for the embedding argument based on common history lies in the somewhat

broader sociological theory of control (Hirshi 1969). With a history of interaction, whether

in the family or community, individuals build up investments in specific relationships that

they will be afraid to lose. Control theory asserts that strong social bonds decrease the

likelihood of malfeasance, not so much because of the increased surveillance and information

flow but because of the implied costs of losing one’s social status within a social arena,

3 The high level of interaction sometimes observed in certain communities may be more indicative of a lack of trust than a high level of solidarity. The interaction would be a reflection of a need to monitor each others’ behavior.


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