How do societies control trust relationships that are not embedded in structures of personal relations? This paper discusses the guardians of impersonal trust and discovers that, in the quest for agent fidelity, they create new problems. The resulting collection of procedural norms, structural constraints, entry restrictions, policing mechanisms, social-control specialists, and insurance-like arrangements increases the opportunities for abuse while it encourages less acceptable trustee performance. Moreover, this system sometimes leads people to throw good "money" after bad; they protect trust and respond to its failures by conferring even more trust. The paper explores the sources and consequences of the paradox that the guardians of trust are themselves trustees.

XREF: Connects to broader literatures on institutional trust, principal-agent problems, and the paradox of trust in modern governance. QUESTION: What specific guardians or institutions exhibit this trust-abuse paradox, and how does escalation of trust after failure perpetuate it?

Granovetter argues that social relations and the obligations inherent in them, rather than generalized morality (the oversocialized conception) or institutional arrangements like contracts or authority structures (the undersocialized conception), "are mainly responsible" for the production of trust in economic life (p. 491).

XREF: Connects to embeddedness literature and economic sociology, contrasting with institutional and rational-choice accounts of trust.

One is to recognize that as a solution to the problem of order, 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 . . . The second is to insist that while social relations may indeed often be a necessary condition for trust and trustworthy behavior, they are not sufficient to guarantee these and may even provide occasion and means for malfeasance and conflict on a scale larger than in their absence.

This article explores the flip side of Granovetter's thesis. It examines the proposition that "networks of social relations penetrate irregularly and in differing degrees in different sectors of economic life. " But it views variability in embeddedness not merely as the exception that proves the rule but rather as exposing significant and intriguing patterns of social organization that create unique problems for social order. Neither does it assume that social relations are a necessary condition for trust. It considers them sufficient conditions, at best, and investigates the sources of trust, if any, when economic transactions are not embedded in social relations.

DEFINE: Clarifies embeddedness as a variable rather than a constant, extending Granovetter's framing.

The article also amplifies Granovetter's second propositionthat the sources of trust may (ironically) provide the opportunity and means for its abuse. It describes the social-control strategies that respond to these abuses of trust and exposes the dialogue between deviance and social control that befuddles the institution of impersonal trust.

DEFINE: Expresses Granovetter's second proposition about trust: the same structures that generate trust also provide opportunity for its violation, plus the social-control responses to that abuse.

From this perspective, trust is established by the gradual escalation of properly conceived and timed reciprocities in personal ongoing exchange relationships. Peter Blau's work on social exchange exemplifies this view of embeddedness as the bedrock of trust: "Social exchange, therefore, entails supplying benefits that create diffuse future obligations. . . . Since the recipient is one who decides when and how to reciprocate for a favor, or whether to reciprocate at all, social exchange requires trusting others. . . . Typically, however, social exchange relations evolve in a slow process, starting with minor transactions in which little trust is required because little risk is involved and in which both partners can prove their trustworthiness, enabling them to expand their relation and engage in major transactions. Thus, the process of social exchange leads to the trust required for it in a self-generating fashion. Indeed, creating trust seems to be a major function of social exchange, and special mechanisms exist that prolong the period of being under obligation and thereby strengthen bonds of indebtedness and trust (1968, p. 454).

Trust is used here in this third sense, as a social relationship in which principals-for whatever reason or state of mind-invest resources, authority, or responsibility in another to act on their behalf for some uncertain future return. Common networks of social relations shared by principal and agent may provide a sufficient incentive for trust-but not a necessary one.

DEFINE: Defines trust as a principal-agent investment relationship with uncertain future returns, distinct from simpler notions of trusting as personal confidence.

Trust is used here in this third sense, as a social relationship in which principals-for whatever reason or state of mind-invest resources, authority, or responsibility in another to act on their behalf for some uncertain future return. Common networks of social relations shared by principal and agent may provide a sufficient incentive for trust-but not a necessary one. In order to understand the various ways in which embeddedness penetrates these trust relationships, it is necessary to take a sustained look at both the sources of agency in complex societies and principals' responses to uncertainty.

DEFINE: Defines trust as a principal-agent investment relationship with uncertain future return, distinguishing it from mere shared social networks.

Agency relationships are found even in relatively simple types of social organization, from the division of responsibility in the nuclear family to the informal reciprocities among children at play. But they especially accommodate more complex forms of organization. Agency fuels social differentiation. Agents bridge the social and physical distances that otherwise limit social exchange. Agents incite and facilitate collective forms of action.

Stenning et al. (1986) express this notion most evocatively: "Trust permits action to unfold in situations in which one party must act before they know that the other will play their part" (p. 5). Others make similar assertions: "trust as a gamble" (Luhmann 1979, p. 24); ". . . prepayment made by him who trusts" (Luhmann 1979, p. 53); choosing to take an ambiguous path that can lead to a beneficial or harmful event (Deutsch 1962); ". . . supplying benefits that create diffuse future obligations" (Blau 1968, p. 4).

DEFINE: Synthesizes multiple scholars' definitions of trust as action taken in the face of uncertainty about the other party's future behavior.

The proliferation of agency relationships derives as much from the increasing scope of production and exchange that creates barriers of access to information and property as from the mere existence of specialization and differentiation and the efficiencies that arise from delegating to agents. Principals entrust agents to bridge the barriers of direct physical access to information and property.

The proliferation of agency relationships derives as much from the increasing scope of production and exchange that creates barriers of access to information and property as from the mere existence of specialization and differentiation and the efficiencies that arise from delegating to agents. Principals entrust agents to bridge the barriers of direct physical access to information and property. They often rely on data provided by agents because their own physical distance from the sources-be they starving children in Bangladesh or Ethiopia, news events in Latin America, choice vacation property in Arizona or Florida, gold mines in South Africa, or tanks of salad oil in Bayonne, New Jersey-precludes personal data collection.

The richest and most intricate agency relationships arise from collectivization. Principals often entrust their property to strangers, having recognized the value of aggregating their assets with those of others to enjoy economies of scale and to spread risk. By joining a money market fund, they command higher rates of interest for their meager savings than are otherwise available. By entrusting funds to an insurance company, they enjoy considerable protection at relatively small cost … These collective forms of agency frequently expand the temporal frame of social exchange, systematically anticipating and exploiting future contingencies. Principals transfer money or property to organizational agents in the expectation of some future payoff in the form of interest, dividends, pensions, inheritance, insurance benefits, or better health. … These "futures transactions" require even more resilient agency relationships than those that delegate property or responsibility to employees, experts, data collectors, or brokers. They demand that commitment be conferred far in advance of payoff without any necessary confirmation during the interim that the return on investment will eventually be honored. Agency arrangements serve as a temporal conduit, connecting relevant past events and future contingencies with present resources.

XREF: Connects to principal-agent theory and economic sociology on organizational trust, deferred compensation, and institutional risk-pooling.

In this light, it comes as no surprise that futures institutions have chosen names like "securities," "social security," "insurance" (which means to guarantee, to make safe), and "credit" (which derives from the Latin "to believe") and that many banks and insurance companies bear names containing the words "trust," "fiduciary," "fidelity," "guardian," "guaranty," and "assurance," not to mention, "prudential," "provident," "beneficial," and "equitable."

With the vast assortment of symbolic forms of wealth available, individuals can continually roll over their investments, trade one account, certificate, contract, or option for another-often by electronic meanswithout ever taking possession of the underlying wealth that these symbols represent. They willingly substitute worthless pieces of paper or plastic or electronic impulses (often held in custody by yet other strangers) for material wealth in the belief that symbolic promises can be readily exchanged for tangible property of equal value.

In a provocative essay, Niklas Luhmann argued that trust serves to increase the potential of a system for complexity (1979, p. 8). As we have seen, the potential for complex forms of social organization afforded by agency relationships seems infinite: global exchanges unencumbered by distance, time, commodity, or familiarity, economies 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.

DEFINE: Luhmann's functional view frames trust as a complexity-enabling mechanism rather than a moral virtue.

Yet these very factors that drive principals into agency relationships also offer opportunities for agent abuse (Clark 1985, p. 77). Trusted individual and organizational agents control property they do not own. They have the capacity to create wealth 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 sources (Arrow 1985, pp. 38-39).

Yet these very factors that drive principals into agency relationships also offer opportunities for agent abuse (Clark 1985, p. 77). Trusted individual and organizational agents control property they do not own. They have the capacity to create wealth 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 sources (Arrow 1985, pp. 38-39). Agents structure futures trans-

QUESTION: What institutional mechanisms constrain this abuse without excessive control costs? Worth exploring how governance structures emerge to mitigate the discretion gap.

Principals cope with these potential risks and uncertainties in a number of ways. Some avoid or limit their participation in agency relationships. A proverbial few keep their money in mattresses-, literally and figuratively-fearful of futures transactions and cautious about transforming their tangible property into a symbolic share of collectivized wealth. Some forgo the benefits of a rich division of labor, delegating little responsibility or property to others and becoming jacks-of-all-trades. Others develop selected expertise to reduce their reliance on agents-becoming lay doctors, mechanics, financial planners, "jailhouse lawyers," and art experts (Molino 1984)-or, at least, seek out second opinions.

Agents create and administer symbolic wealth, often taking custody of tangible property in exchange for worthless promissory symbols of potential earnings. And, even when they resist these temptations, trustworthy agents are beset by conflicting claims from their various role identities that may undermine overall fidelity. Agents therefore hold structural opportunities to "take the money-in all its manifest forms-and run," while unwitting principals, blinded by distance, organizational structure, secrecy, and lack of expertise, idly await the future dividends of symbolic promises made by faceless strangers. " Hence, the problem of trust.

DEFINE: Defines the 'problem of trust' as a structural agency problem where symbolic promises and asymmetric information create opportunities for fiduciary betrayal.

Agents therefore hold structural opportunities to "take the money-in all its manifest forms-and run," while unwitting principals, blinded by distance, organizational structure, secrecy, and lack of expertise, idly await the future dividends of symbolic promises made by faceless strangers. " Hence, the problem of trust.

Principals cope with these potential risks and uncertainties in a number of ways. Some avoid or limit their participation in agency relationships. A proverbial few keep their money in mattresses-, literally and figuratively-fearful of futures transactions and cautious about transforming their tangible property into a symbolic share of collectivized wealth. Some forgo the benefits of a rich division of labor, delegating little responsibility or property to others and becoming jacks-of-all-trades. Others develop selected expertise to reduce their reliance on agents-becoming lay doctors, mechanics, financial planners, "jailhouse lawyers," and art experts (Molino 1984)-or, at least, seek out second opinions. Large corporations acquire the expertise of formerly independent agents by buying them out and merging them into the corporation as a subsidiary (Stinchcombe 1986); vulnerable economic transactions are internalized within hierarchically organized firms rather than performed by market processes across these firms (Williamson 1975). But forgoing these agency relationships considerably constrains efficiency, affordability, richness of experience, and protection from risk. Carried to an extreme, it produces paralysis.

Second and alternatively, principals attempt to reduce their exposure to agent abuse by spreading their risk (Heimer 1976). Banks frequently sell their consumer and corporate loans to other corporations, pension funds, and insurance companies (Sandler 1984). Insurance companies develop reinsurance arrangements whereby they resell portions of their policies to other insurers who accept part of the risk in return for a share of the premium.

Economic analyses of agency relationships imply that such abuse is economically rational and, indeed, inevitable under certain conditions (see, e.g., Jensen and Meckling 1976, p. 313). But equating the structural opportunities to abuse agency and the actual seizing of these illegitimate opportunities obscures the difficult task of accounting for the latter (something to which neither economists nor sociologists have made much of a contribution).

XREF: Relates to principal-agent theory literature and the gap between incentives and realized behavior.

But these actions escalate problems of abuse as much as they reduce them (Sandler 1984; Bleakley 1985). They create new forms of collective agency. They increase the physical and social distance in agency relations, further impeding surveillance. They introduce new disabilities of expertise, since the second-order principals who repurchase risky transactions rarely have the particularistic risk-assessment experience possessed by the original. And they diminish the incentives for these first-order principals to enter agency relationships cautiously (so-called lending discipline in banking) because they are able to pass along these unwarranted risks to others (Sandler 1984).

XREF: This connects to modern insight on how securitization and mortgage-backed securities diluted lending standards, anticipating the 2008 financial crisis.

Granovetter is probably correct in observing that, when faced with the choice, individuals and organizations invariably opt to transact with those of known reputation or, better yet, with those with whom they have had past dealings (1985, p. 440). His use of examples, cited earlier, of the social ties that bind established firms and their members who are engaged in repetitive transactions or have ongoing relationships in the same community, industry, or labor market clearly illustrates this preference. But embedding agency in social relations is not always possible. Indeed, there is a systemic link between the sources of agency-particularly those bridging physical and social distance and facilitating collective actionand the absence of opportunities to personalize these relationships.

This coping strategy, for example, virtually precludes participation in collectivized forms of agency that aggregate and depersonalize and limits transactions in symbolic wealth effected by faceless market mechanisms. In complex labor markets, one can still find the dedicated family doctor among the one-shot specialists and interchangeable HMO staff physicians, the loyal attorney among the anonymous collection of law firm associates and the highly turned-over stable of franchised legal-clinic lawyers, the trusted neighborhood mechanic among the AAMCO transmission and Midas muffler shops, and other familiar specialists who provide ongoing expertise to meet individualized needs (however, see Stinchcombe 1984, pp. 864-65). But analogous long-term relationships with trusted bankers, stockbrokers, insurance agents, and others (who usually represent huge corporations that merge and divest or shift their management and ownership and, therefore, their "identities," and who often act as intermediaries between still other faceless individuals and corporations) merely provide a personalized smokescreen for inherently collective forms of action.

DEFINE: 'Personalized smokescreen' explains how individual bank/broker relationships obscure that these professionals represent large, shifting corporations.

Contract represents a fourth strategy by which principals can assume some control over the behavior of those who act on their behalf. Contracts enunciate the principal's preferences and priorities, disclose the responsibilities and obligations of agents, explicitly state the procedures agents are to follow and the decision rules they are to employ (thereby limiting agent discretion), plan for contingencies, create incentives for contractual compliance, and specify sanctions to be imposed if agreements are not kept. Principals and agents engage in "norm making"; they formulate a unique normative agenda appropriate to their relationship.

DEFINE: Defines contract as a control strategy in the principal-agent framework, distinguishing it from other mechanisms.

Research findings suggest that transacting parties-even sizable business firmsprefer personalized over contractual control (Macaulay 1963). Still, the long history and popularity of prenuptial agreements and wills (Barber 1983, pp. 30, 40-43) suggest that contract plays a role even in transactions most securely embedded in structures of social relations.

XREF: Connects to relational contract theory and embeddedness literature (Granovetter), plus classic sociolegal work on when law is used vs. avoided in ongoing relations.

But many principals hire a mechanic because they have not the faintest idea whether the parts are in working order and a stockbroker because they do not know when it is best to buy, sell, or hold on to their securities. It is precisely because principals are incapable of contractual specification that many of them enter agency relationships in the first place. Moreover, as critiques of contingent-claims contracting assert, uncertainty and complexity make it costly, if not impossible-even for sophisticated parties-to anticipate all future contingencies and specify appropriate adaptations at the outset

Principals can place contractual limitations on agent performance; for example, they can ask auto mechanics to return the parts they replaced or require stockbrokers to consult with them before they trade their portfolio. But many principals hire a mechanic because they have not the faintest idea whether the parts are in working order and a stockbroker because they do not know when it is best to buy, sell, or hold on to their securities. It is precisely because principals are incapable of contractual specification that many of them enter agency relationships in the first place.

Fourth, even if they are able to specify the responsibilities of agents, many principals are unable to monitor the performance of contractual commitments. Decedents cannot evaluate whether the executors of their estate truly complied with the stipulations of their wills. Secrecy, as well as the physical, temporal, and social distance inherent in many agency relations precludes principals' surveillance of agent behavior. … And lack of expertise further limits the ability of principals to evaluate what they are able to observe. Principals who lack the specialized knowledge of their agents and are excluded from the sites of agency action are therefore unable to articulate or enforce the norms that should govern agent behavior.

DEFINE: Clarifies a key dimension of principal-agent problems: monitoring failure stemming from secrecy, distance, and expertise gaps — not just incentive misalignment.

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 organizational agents exercise considerable delegated power and privilege on behalf of principals who can neither specify, scrutinize, evaluate, nor constrain their performance.

DEFINE: Defines impersonal trust as a specific form of trust that arises under particular structural conditions—absent direct social ties and oversight capacity.

These cases can occur when (1) agency relationships are not embedded in networks of social relations, (2) relationships are episodic rather than continuing, (3) principals are "one-shotters" and agents "repeat-players," (4) principals cannot evaluate agent performance (because they lack access or expertise, are literally incompetent, or are committed to futures transactions and necessarily await delivery on agent promises), (5) agents have actual possession of principals' property (and, therefore, exit may not be a viable option for aggrieved principals), or (6) agency offerings are not easily rescinded or reversed (e.g., surgery).

XREF: Connects to principal-agent theory literature in economics and organizational behavior, and to one-shotter/repeat-player dynamics familiar from game theory and legal scholarship.

As Luhmann observes, "In practical terms, control over trust can only be exercised as someone's main occupation. Everybody else must rely on the specialist involved in such control, and thus is forced to remain on the periphery of events"

Guardians make no assumptions about whether actors are oversocialized, undersocialized, or, instead, striving for social connection in their economic relations. They skeptically embrace all three accounts, offering a mix of normative prescriptions, socialization opportunities, institutional arrangements, structural constraints, and networking strategies.

When it is structurally difficult to tell agents how to behave or exercise their discretion properly, and even more formidable to specify the desired outcomes of their efforts, norms that procedurally constrain the agency process provide an alternative. The relationship between these general norms and the unique contractual norms that ideally control a given agency relationship is somewhat akin to that between procedural law and substantive law or secondary rules and primary ones (Hart 1961).

DEFINE: Clarifies how procedural norms function as an alternative when outcome specification is impractical, drawing an analogy to Hart's secondary vs. primary rules.

Granovetter would surely argue that these measures "do not produce trust but instead are a functional substitute for it" (1985, p. 489), as he would also suggest about risk spreading and contractual control by principals, described earlier. In contrast, I am arguing that only strategies that virtually eliminate agency and uncertainty are functional substitutes for trust. All efforts to reduce uncertainty-whether through familiarity, reciprocity, threats of sanction, procedural rules, policing, compensatory side bets, or whatever-seek to induce trust. I do not consider personalized control to be all that different from the other measures.

The most basic fiduciary norms, those that are enunciated in ethics codes, standards of practice, regulatory statutes, judicial decisions, and the like, respond to the generic structural opportunities for abuse available to trustees of all sorts that arise from their custody of and discretion over property and opportunity, their special access to information, and their expertise (Abbott 1983). … Disinterested trustees are expected to place the interests of those they represent over their own, to deal at arm's length and disqualify themselves from agency relationships that create conflicts of interest, to limit their compensation and other position-related benefits, and to refrain from self-dealing (exercising legitimate discretion for personal advantage)20-and, of course, from misappropriating the assets or property of which they have custody.

DEFINE: Explains what fundamental fiduciary norms are and how they respond to structural vulnerabilities inherent in trusteeship.

Norms about disclosure apply particularly to agents in information dissemination and interpretation roles, for example, journalists, accountants, or scientists. Procedural regulations embellish the norm. They touch issues such as standards of proof (corroboration, replication, or second opinions), sampling, randomization, surprise or spontaneity, control groups, statistical inference (or other assessments of validity, reliability, alternative interpretations, side effects), confidentiality or the proprietary nature of information, and the threshold (what is material, what can be omitted) and timing of disclosure. These rules for gathering and disseminating information do not generate objective truth, of course, but do provide a set of explicit conventions by which principals can interpret the data offered by agents.

XREF: Connect to principal-agent theory and epistemic/normative frameworks about trust in expert institutions.

Examples of self-dealing include directing corporate business to firms in which the agent has a financial interest, exploiting organizational resources to create new opportunities from which the agent can benefit (a municipal official rezoning a spouse's property for commercial use, a banker extending unsecured bank loans to his friends, a conservator using the assets of an incompetent widow to invest in personal real estate deals), or using corporate information for personal advantage-so-called insider trading.

Expectations of role competence appear most problematic analytically, given the difficulty of specifying abstract standards of competence (particularly regarding esoteric or highly specialized roles) and of teasing out abuses of trust from mere differences in the talent or commitment of the agent. Here, I take a minimalist view, simply that the most basic rolespecific procedures-of science, medicine, law, pension fund management, auto repair, etc. -have been followed. For example, before a routine elective abortion is performed, a pregnancy test must be administered. Before corporate directors vote affirmatively on a $688 million takeover offer, they must make some inquiry about the company's worth or the fairness of the offer (Koenig 1985). If the role is a credentialed one, the norm requires that the agent have actually obtained the credentials legitimately. (Purchased degrees and fabricated licenses or certificates fall outside the ambit of trustworthy agency.) There is still plenty of leeway in the norm for errors, bad decisions, gratuitous surgery, botched repairs, inaccurate news reports, and audit failures to detect financial fraud, so long as agents conform with basic procedures.

DEFINE: The passage defines a minimalist notion of role competence: merely following basic procedures of the role (pregnancy tests, due inquiry before votes, legitimate credentials) rather than meeting abstract standards.

To standards in journalism-'objectivity,' and so on-they are really talking about a set of conventions that have been created in this country over the past fifty years or so. These conventions tell the journalist how to write, and the reader how to read, a news story in an American newspaper. They set out what sort of information should go in the lead, who should be quoted in reference to what, and so on. As newspaper readers, we are so accustomed to these conventions that we barely notice them anymore. But their effect is to allow the reporter and the reader to share certain markers. You as the reader cannot be certain that what you are reading is 'the truth'; you cannot be certain that it is 'objective' in any real sense. But you can be sure that the reporter will interview certain people and ask certain questions, that he will go about constructing the written account in a certain way, and that certain standards of accuracy and, if you like, fairness will be observed" (Lapham et al. 1985, pp. 40-41).

XREF: Connects to debates about media criticism and the socially constructed nature of objectivity, echoing similar claims by scholars of journalism studies.

In this case, the fact that the directors decided to sell the corporation after a hasty, apparently unresearched, two-hour board meeting did not especially exemplify their role competence in the eyes of the Delaware Supreme Court, which found them liable for damages.

Personnel are frequently rotated to extinguish established conspiracies of collaboration and cover-up and thereby maximize costs of conspiratorial reorganization. Intentional redundancies or duplications of function are structured into the division of labor to expose or compensate for the delicts of agents with overlapping responsibilities.

Organizations require agents to divest their stockholdings or place them in blind trusts, to develop rules of celibacy or, in the case of Plato's Guardians, prohibitions against family membership (that otherwise creates powerful intimate bonds that compromise norms of disinterestedness).

For example, they fill a specified number of positions on boards of directors with corporate outsiders. Organizations require agents to divest their stockholdings or place them in blind trusts, to develop rules of celibacy or, in the case of Plato's Guardians, prohibitions against family membership (that otherwise creates powerful intimate bonds that compromise norms of disinterestedness).

XREF: Connects to principal-agent theory and institutional design around impartiality — resonates with broader literature on conflicts of interest.

The designation of successors by the original charismatic leader, a second strategy described by Weber, represents an important gatekeeping mechanism regulating trustee roles. Selection systems based on recommendation, nomination, or reference; professional licensing, certification, and accreditation; and peer review ask trustees to reproduce themselves on the basis of either personal acquaintance with candidates for positions of trust or the trustees' ability to recognize and assess necessary qualities in their successors.

Weber describes the rigorous investigation of moral worth, probation, and balloting that preceded baptism and admission to a local congregation and argued that the resultant certificate of membership insured credit everywhere, even from out-of-town strangers and nonmembers of the sect.

XREF: Connects to Weber's Protestant ethic thesis and the idea that religious credentials translated into economic trust in early capitalism.

Weber's (1968, pp. 1143-45) observation that charismatic education is steeped in asceticism, isolation, physical and psychic exercises, and continuous testing has obvious parallels in many contemporary trusteeship "prep schools."

XREF: Connects Weber's sociology of charismatic authority to contemporary educational institutions, drawing a parallel between historical religious training regimes and modern elite prep schools.

A few of these gatekeepers, professional associations that issue credentials and accreditations or regulatory watchdogs that register and provide clearance, also serve to monitor the performance of and punish abuse committed by candidates after they have been installed in positions of trust. These are joined by a huge complement of additional social-control organizations that audit trustee books and records, conduct surprise inspections, engage in undercover scrutiny, or encourage and follow up on complaints from consumers, clients, business associates, and in-house whistle-blowers. Such organizations also set up sting operations and other strategems to induce, participate in, or observe deviant conduct; surveil stock-market trading patterns, advertising, telephone billing records, and other indirect output of trustee activities for inferences of potential misconduct; crossmatch data bases (e.g., of welfare and payroll records); and so forth.

These "unauthorized" surveillants who represent principals rarely have access to the inner sanctums of the agents under scrutiny and must therefore devise more innovative inferential models and unobtrusive measures of trustee performance, integrity, candor, or competence.

Other principals join membership associations and support public-interest group watchdogs or collectivize to share the costs and enjoy the economies of scale involved in protecting their trust. Collectivization also serves as an embeddedness strategy, since these associations are more likely than their constituents to have dense, repetitive, or ongoing ties to trustees that enable them to select, monitor, and control those who act on their behalf (Galanter 1974).

XREF: Relates to principal-agent theory and reputational trusteeship literature, connecting to institutional trust and embeddedness economics.

A different group of institutional guardians of trust responds to the futures component of trust and the reality that most agency offerings are inherently contingent and therefore risky and uncertain. As noted earlier, one of the vulnerabilities of agency to abuse results from the fact that trustworthiness can often be ascertained only some considerable length of time after trust has been conferred. Some institutional guardians anticipate this possibility of normative or social control failures by providing advance protection against future deviant outcomes or compensation for accomplished misdeeds.

DEFINE: Distinguishes institutional guardians that preemptively protect against future risk or compensate for past wrongs.

The likelihood of receiving a bad rating from firms like Standard & Poor's or Moody's these days seems somewhat unlikely. Because of the growing complexity of financial markets and the securities they offer, rating firms are increasingly taking on the role of regulators and rule makers as well as judges. Ratings become negotiable as corporations structure their deals to accommodate the demands of the raters and thereby get the ratings they need (Monroe 1986).

QUESTION: This is an old observation (1986 Monroe). How much more entrenched has this ratings-negotiation dynamic become post-2008, and does it still hold given recent regulatory scrutiny?

Because of the growing complexity of financial markets and the securities they offer, rating firms are increasingly taking on the role of regulators and rule makers as well as judges. Ratings become negotiable as corporations structure their deals to accommodate the demands of the raters and thereby get the ratings they need (Monroe 1986).

XREF: Connects to critiques of rating agencies in the 2008 financial crisis, where ratings-driven deal structuring amplified systemic risk.

Corporations buy liability insurance protection for their officers and directors and bond their lesser employees. Brokerage firms, banks, and insurance companies must meet minimum reserve or net capital requirements; investors selling securities short must maintain margin accounts with their brokers. Those desirous of bank loans are usually required to put up collateral equivalent in value to the loan to protect creditors against default, while the banks that lend them the money take out insurance. Federally chartered banks contribute to the FDIC or FSLIC insurance funds as protection for depositors against bank failure, pension plan sponsors pay into the Pension Benefit Guarantee Corporation (PBGC), and many brokerage firms participate in the Securities Investor Protection Corporation (SIPC) for the same reason.

Insurance is available (and increasingly popular) for municipal bondholders (Sandler 1984). Opinion on the efficacy of these institutional compensation mechanisms is mixed. Some argue that the proliferation of insurance arrangements has a self-fulfilling quality-that the possibility that insured trustees will find their sizable insurance coverage a comfortable cover for carelessness and lax internal control facilitates violations of trust (Heimer 1985; Berton … Others counter this "morale hazard" argument with the observation that insurance actually provides an ancillary layer of social control. Instead of creating incentives for carelessness, these arrangements foster the development of vigorous and effective intraagency control. Insurance companies, for example, apply pressure on their policyholders to undertake measures for minimizing liability (Heimer 1985; Walsh 1985b; Bardach and Kagan 1982, p. 10). They may set standards, require recordkeeping systems, inspect operations, audit books and records, advise on systems of internal control, supervise hiring, mandate intervention or joint control by disinterested third parties, or provide incentives for trustworthy behavior by offering deductibles or experience ratings (Heimer 1985).

XREF: Connects to broader literature on insurance as a social control mechanism (Heimer 1985) and the morale hazard debate. DEFINE: Introduces the 'morale hazard' argument—that insurance coverage may encourage carelessness—contrasted with insurance as a layer of external control.

In some instances, this rich overlapping texture of social-control strategies provides a safety net when one guardian fails. In other instances, a single failure of trust or social control can touch off a geometrically escalating chain reaction of associated failures among interdependent institutions (Shapiro 1987).

Ironically, the public and private guardians of trust also stand in a trust relationship with those whom they hope to reassure. Guardians of trust are agents. They perform social-control roles for principals who have conferred trust on others (or who consider doing so) and they act to collectivize and spread the risk of these trust relationships through insurance-like schemes. As agents, guardians hold the same precarious relationships with their principals as do those trustees they now oversee: guardians frequently have greater expertise than their principals and are therefore relatively immune from principals' assessments of their role competence. They require a considerable amount of discretionary power (that can also be exercised for self-interest). The physical and social distances that necessarily separate guardians from principals minimize the opportunities for the latter to scrutinize role performance. And insurancelike arrangements provided by these trustees of trust often constitute futures transactions that offer few intrinsic guarantees that future promises or obligations will be met.

XREF: Extends principal-agent theory to institutions meant to police trust, mirroring the same expertise-asymmetry and discretion problems faced by the trustees they regulate.

Guardians can lie, misrepresent the safety and security of their services, ignore misdeeds, steal, self-deal, accept bribes, and overlook their own conflicts of interest. Many of the social-control strategies just described are vulnerable in some way.

Critics charge that self-regulatory schemes may effectively protect principals against the most reprehensible misdeeds of trustees who are weak and marginal. But, under such arrangements, questionable activities that are standard professional practices or more serious abuses that are committed by mainstream practitioners may be ignored. Conflict of interest is intrinsically untrustworthy because it directly violates norms of disinterestedness. Self-regulation is a form of institutionalized conflict of interest; financial reporter Lee Berton (1986) proclaims the concept "oxymoronic."

DEFINE: Defines self-regulation as a form of institutionalized conflict of interest, contrasting it with the disinterestedness norm it violates.

Still more problematic is that almost all these guardianship arrangements are ripe for corruption. Validation and inspection are inherently discretionary activities. And discretion can be compromised. The incentives provided by the targets of trust enforcement to look the other way are often considerable, given the fact that guardians of trust often have the power to abort a profitable illicit scheme or to allow it to flourish by giving it a stamp of approval. (Indeed, some swindlers intentionally try to get inspected, licensed, or certified-they hope, by incompetent or corrupt guardians-since a passing grade confers significant market appeal.)

Still more problematic is that almost all these guardianship arrangements are ripe for corruption. Validation and inspection are inherently discretionary activities. And discretion can be compromised. The incentives provided by the targets of trust enforcement to look the other way are often considerable, given the fact that guardians of trust often have the power to abort a profitable illicit scheme or to allow it to flourish by giving it a stamp of approval. (Indeed, some swindlers intentionally try to get inspected, licensed, or certified-they hope, by incompetent or corrupt guardians-since a passing grade confers significant market appeal.) As a result, bribery scandals implicating police officers, government regulators, public and private inspectors, independent testing laboratories, and the like are legendary and their numbers staggering. And the somewhat more subtle problems of cooptation of regulators by the regulated and the conflicts of interest and favoritism in the exercise of discretion that arise from the inevitable revolving door between positions in the public and private sectors are no less frequent or threatening to the institution of trust (Kneier et al. 1976).

XREF: Connects to regulatory capture theory and revolving-door literature beyond the cited Kneier et al. source.

Self-regulation has its defenders, too. Advocates point to the fact that private inspectors, unlike external regulators, are on site continually, "are more specialized and more knowledgeable about the risks generated by their company's operation," "are more likely to have the trust of the people they regulate and thus to have access to finer-grained and more relevant information," and "can tailor protective standards more closely to the hazards presented by the particular enterprise" (Bardach and Kagan 1982, pp. 219, 272).

For accounting firms, for example, half or more of whose revenue may be provided by a single client, truthful negative revelations are often acts of corporate suicide. … Even when CPAs are too scrupulous to accept bribes to cook the books or look the other way, their firms may be unable to afford to lose valuable clients by pursuing full candor (Seidler, Andrews, and Epstein 1977).

XREF: Connects to broader patterns of conflicts of interest in gatekeeping professions — analogous to auditors, rating agencies, and even publishers beholden to advertisers.

Even where trustees of trust ignore these illicit opportunities-as most undoubtedly do-the question remains whether the protections some of them guarantee and most principals assume exist can be attained.

QUESTION: This raises a deep question about whether the guarantees trustees offer are even attainable in principle, not just whether trustees are honest.

When these guardians of trust that simulate strategies of personalized and contractual control fail, principals turn to their insurance policies, collateral, and margin accounts. Unfortunately, they discover that these institutionalized risk-spreading and compensation mechanisms are no less vulnerable than the institutions they are meant to protect.

Principals who accept collateral or other security on futures transactions trust that the collateral will retain its value and will be collectible in the case of foreclosure, expectations that are not always satisfied (Sandler and Hertzberg 1985; Ingersoll 1985). Both trustees who buy insurance policies and principals who have been reassured by the ancillary insurance protection trust that the insurance company is properly capitalized and takes reasonable risks. Moreover, they presume that premiums are invested properly, free of the specter of misappropriation or self-dealing. There is no reason to be more trustful of fidelity-like insurance than of other insurance or, indeed, of any-other futures transaction.

Many securities swindles use this ruse (Bennett 1985; "How Bank of America" 1985). Those seeking investments in a relatively unknown company represent to potential investors that funds will be insured by "Fidelity Fiduciary Guaranteed Trust Insurance, Inc." (with a corporate logo that closely resembles that of the FDIC). In reality, this guardian of trust is a straw company with no assets, frequently run by the stock swindlers themselves or by their associates. This added feature often convinces many investors that the prospect is safe and induces their commitment. It is curious that even the most cautious in conferring trust can be easily taken in by trusttrusteeship scams.

A reviewer provided one example of the dilemma: "In the early days of surety bonding, courts commonly asked the surety to give some evidence of his/her ability to make good if the principal should default. But these statements of financial standing were not kept current, so while a surety may have been financially reliable when the suretyship arrangement began, he/she was not necessarily in good financial standing when the principal actually defaulted years later."

QUESTION: Does modern surety bonding require ongoing financial monitoring to keep qualifications current? It seems surprising that historical bonds accepted a one-time check with no updates.

In the latest twist, new low-grade securities that have no record "rent a rating," purchasing a guarantee for payment of principal and interest from a reputable insurance company. "Lacking time to do thorough analysis of the entire project, overworked credit analysts simply look to the quality of the guarantor and then, if the firm is respectable, issue an investment grade rating." Investors see the AAA rating and lose their shirts (Willoughby 1986).

XREF: Connects to financial market incentives and moral hazard literature on ratings agencies and their substitutes.

So who guards the guardians? Trust does. The guardians of trust are held to the same standards of disinterestedness, full disclosure, and role competence as those they oversee. And because of the fear that they are no more likely to abide by these norms than are first-order trustees, third-order trustees of trustees of trust-systems of social control over social-control agents-respond. In complex societies in which agency relationships are indispensable, opportunities for agent abuse sometimes irresistible, and the ability to specify and enforce substantive norms governing the outcomes of agency action nearly impossible, a spiraling evolution of procedural norms, structural constraints, and insurance-like arrangements, each building on the former, seems inevitable. One of the ironies of trust is that we frequently protect it and respond to its failures by bestowing even more trust. In the jargon of investment, we sometimes throw good money after bad.

XREF: Connects to the concept of regulatory trust cascades and institutional design for trust.

With each cyclical revolution of nth-order trust relationships and their associated guardians, of new strains of deviance and new procedural cures, one gets the unsettling feeling that the original agency agenda has become distorted along the way.

XREF: Connects to ideas about institutional mission drift and how procedural responses to deviance accumulate, reshaping organizational purpose over time.

Congress has shaped environmental laws in a way that "assumes they will not be administered fairly," he complained last week. By allowing the E.P.A. too little discretion, the laws stifle progress in protecting the environment. . . . Inflexible laws serve no one's long-run interest. Scientific unknowns and changing technology make it impossible to write good prescriptive environmental law. Mr. Ruckelshaus is right in principle: with more discretion, the Administrator could protect the environment in more rational ways. For that to happen, industry and environmentalists will have to stop demanding that Congress write laws leaving E.P.A. no room for judgment.... It will take time for any administrator to earn the trust that Mr. Ruckelshaus commands, but to deny flexibility is to step from mistrust to misgovernment.

It's unreasonable to expect to gain a full understanding of public life in America from the daily newspaper, but the citizen ought not to be deprived of information the reporter has. Yet because of our rules of journalism, this often happens. For example, it seems to be an unwritten law in the journalism profession that a reporter cannot, in a news story, infer a motive from the actions or words of a public figure; only another public figure can do that. The reporter can discover two facts, but he can't add them together to make four, at least not in his own voice. The reporter has to present the secretary of state with his facts, and ask: Mr. Secretary, does this make four? If the secretary replies, No, that makes five, that's what the reporter has to print. I've read so many newspaper stories over the years in which the obvious political motive behind an action or a statement goes unstated. Instead, we get an analysis by some interested party.

XREF: Connects to ongoing debates about objectivity in journalism and the decline of the traditional 'he said, she said' model.

By creating guardians of trust, we foster all kinds of ancillary certifications or guarantees of trustworthiness (such as government registration, CPA certifications of financial statements, credit ratings, licenses, lie-detector scores) that are readily manipulated yet are now essential to principals who have abdicated their distrust to these new guardians. Hence, as Granovetter has suggested, the proliferation of trust-trustees increases the opportunities to exploit less wary principals.

XREF: Relates to the broader discussion of delegated distrust and how systems meant to build trust create new vulnerabilities, echoing the theme of institutions as double-edged swords.

The paradox of trust is akin to the choice between Type I and Type II errors. Should the procedural constraints of trust be set so narrowly that desirable agency behavior is deterred or so flexibly that inappropriate behavior is tolerated? Most often, principals equivocate: they really hope that trustees do not take their instructions too literally yet simultaneously fear that they will not.

Take portfolio insurance, in which investors use "stock index futures contracts to offset positions in the stock market to limit their losses to a predetermined proportion of their original investment.... It is one of the ironies of this complex computerized age ... that an approach designed to insure against more losses than they are willing to accept is seen by some as contributing to the very volatility that makes the markets so treacherous for so many investors.

QUESTION: This irony suggests an angle worth investigating: could risk-management tools systemically amplify the very risks they hedge against? Worth tracing how portfolio insurance contributed to the 1987 crash.

I have argued that impersonal trust permits complex developments in social organization and exchange that create distinctive opportunities for abuse. These are responded to by new social-control strategies that unfortunately share some of the same structural properties as the original developments. Therefore, similar opportunities for violation emerge and stimulate new social-control measures that contain the structural seeds of further deviance. And so on.

XREF: Echoes the idea of legislation creating loopholes and further legislating, and self-fulfilling prophecy dynamics in social theory. Also resonates with cybernetic feedback loops.

The paper exposes an inflationary spiral of escalating trust relationships and the paradox that the more we control the institution of trust, the more dissatisfied we will be with its offerings.

I have argued that impersonal trust permits complex developments in social organization and exchange that create distinctive opportunities for abuse. These are responded to by new social-control strategies that unfortunately share some of the same structural properties as the original developments. Therefore, similar opportunities for violation emerge and stimulate new social-control measures that contain the structural seeds of further deviance. And so on. The paper exposes an inflationary spiral of escalating trust relationships and the paradox that the more we control the institution of trust, the more dissatisfied we will be with its offerings.

QUESTION: This 'inflationary spiral' is a compelling mechanism worth exploring — how far does the escalation go before it destabilizes the entire trust institution?

Given the inherent tensions, contradictions, and paradoxes that confound agency relationships, why the persistence of impersonal trust? To argue that principals in complex society have no choice but to trust is far too simple. Indeed, there is enormous variability in the extent to which, and the conditions under which, they exercise that choice. The task of discovering and teasing out explanations for that variability arouses the sociological imagination.

E.g., Viviana Zelizer contrasted the popularity of life insurance and trust business in 19th-century America, arguing that public apprehension of the former as a hazardous enterprise stymied its growth: "The charters of Pennsylvania, Massachusetts, New York Life, and Girard companies gave them the power to do trust business, and their trust departments flourished while life insurance foundered. It was an unexpected development, for these companies had anticipated doing most of their business with life insurance. The Massachusetts Hospital Life Insurance Company started its life insurance and trust business in 1818. In 1823, it collected $696 worth of life insurance, while its trust business yielded almost $70,000. In 1827, it issued only 35 life policies, but almost 304 annuities and endowments in trust. By 1830, the trust business of the company amounted to almost $5 million"

XREF: Counterintuitive pattern in consumer adoption of financial products — connects to how technological or economic trust gaps shape adoption curves, relevant to innovation diffusion literature.

Why do particular trust institutions have the type and extent of guardianship that they do? (E.g., why does our society place so many entry restrictions on who can be a doctor or a lawyer, but so few on who can be a child-care worker or a soldier or, for that matter, own a bank or hold public office?) Are there distinctive patterns of trust guardianship that arise after scandals that are unlike those that develop in the normal course of agency relationships? How do the trust guardians compare in their abilities to deter or limit the opportunities for abuse, to provide adequate protection in the event of socialcontrol failure, or to minimize the undesirable consequences of proceduralism? Which seem best able to withstand abuse themselves? What is the relationship between regulation/deregulation and trust?

QUESTION: The passage poses open research questions about why guardianship levels differ so dramatically across occupations and whether scandal-driven guardianship follows its own pattern. SEED: A comparative essay on why society heavily gates doctors and lawyers but barely gates bankers, child-care workers, or soldiers could be compelling.