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Transparency, Efficiency and the Distribution of Economic Welfare in Pass-Through Investment Trust Games

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Author Info

  • Thomas A. Rietz

    (Henry B. Tippie College of Business, University of Iowa)

  • Roman M. Sheremeta

    ()
    (Argyros School of Business and Economics, Chapman University)

  • Timothy W. Shields

    ()
    (Argyros School of Business and Economics, Chapman University)

  • Vernon L. Smith

    (Economic Science Institute, Chapman University)

Abstract

We design an experiment to examine welfare and behavior in a multi-level trust game representing a pass through investment in an intermediated market. In a repeated game, an Investor invests via an Intermediary who lends to a Borrower. A pre-experiment one-shot version of the game serves as a baseline and to type each subject. We alter the transparency of exchanges between non-adjacent parties. We find transparency of the exchanges between the investor and intermediary does not significantly affect welfare. However, transparency regarding exchanges between the intermediary and borrower promotes trust on the part of the investor, increasing welfare. Further, this has asymmetric effects: borrowers and intermediaries achieve greater welfare benefits than investors. We discuss implications for what specific aspects of financial market transparency may facilitate more efficiency.

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File URL: http://www.chapman.edu/ESI/wp/Sheremeta-Shields-Trust_Intermediary.pdf
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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 11-03.

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Length: 33 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:chu:wpaper:11-03

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Related research

Keywords: financial intermediation; financial market transparency; pass through securities; multi-level trust games; experiments;

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References

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  1. Kevin McCabe & Mary Rigdon & Vernon Smith, 2004. "Sustaining Cooperation in trust Games," Experimental 0403005, EconWPA.
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  9. Roman M. Sheremeta, 2010. "Expenditures and Information Disclosure in Two-Stage Political Contests," Journal of Conflict Resolution, Peace Science Society (International), vol. 54(5), pages 771-798, October.
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  11. Greiner, Ben & Vittoria Levati, M., 2005. "Indirect reciprocity in cyclical networks: An experimental study," Journal of Economic Psychology, Elsevier, vol. 26(5), pages 711-731, October.
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Cited by:
  1. Jingnan (Cecilia) Chen & Daniel Houser, 2013. "Promises and Lies: An Experiment on Detecting Deception," Working Papers 1038, George Mason University, Interdisciplinary Center for Economic Science, revised Feb 2013.
  2. Mago, Shakun & Samak, Anya & Sheremeta, Roman, 2013. "Facing Your Opponents: Social Identification and Information Feedback in Contests," MPRA Paper 47029, University Library of Munich, Germany.

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