Trust and information sharing in supply chains

D rawing on behavioral research, we construct a multi-period model with which to examine the role of trust and othersocial characteristics in a supply chain. Specifically, we focus on trust building in the context of a salesperson who acts as a representative of a manufacturer and shares demand forecast information with a retailer. The actions of the sales-person affect both her immediate economic gain and her future credibility as determined by retailer’s trust. Our analysis reveals that, in such environments, although salespersons of widely varying types (e.g., honest, self-serving, benevolent, loyal) lie some extent about their forecast information, they tend to be trusted in long relationships, provided their fore-casting accuracy is higher than that of the retailer. Furthermore, while the presence of a salesperson can improve the prof-its of both the retailer and manufacturer, there are cost structures under which the manufacturer is better off without a salesperson. Finally, we make the general observation that the appropriate salesperson compensation scheme depends on her social characteristics, and the specific observation that when the salesperson cares for the retailer, the linear compensa-tion scheme commonly suggested in the literature as the optimal compensation scheme for the salesperson is no longer optimal. Key words: supply chain; trust; information sharing; salesperson; social characteristic