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Trust, Reciprocity and Rules

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Author Info

  • Thomas A. Rietz

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

  • Eric Schniter

    () (Economic Science Institute, Chapman University)

  • Roman M. Sheremeta

    (Argyros School of Business and Economics, Chapman University)

  • Timothy W. Shields

    (Argyros School of Business and Economics, Chapman University)

Abstract

In the absence of enforceable contracts, many economic and personal interactions rely on trust and reciprocity. Research shows that although this reliance often works well, sometimes it breaks down. Simple rules mandating minimum standards on reciprocation prevent the most egregious trust violations, but may also undermine behavior that would have otherwise produced higher overall economic welfare. We test the efficacy of exogenously imposed minimum return rules using experimental trust games. We find that rules fail to increase trust and trustworthiness. Thus low minimum standards significantly decrease economic welfare. Although sufficiently restrictive rules restore welfare, trust and trustworthy behavior never returns.

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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 11-06.

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Length: 50 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:chu:wpaper:11-06

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Related research

Keywords: trust games; experiments; reputation; information; reciprocity;

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  1. Carl Mellström & Magnus Johannesson, 2008. "Crowding Out in Blood Donation: Was Titmuss Right?," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 845-863, 06.
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  3. Andreas Fuster & Stephan Meier, 2010. "Another Hidden Cost of Incentives: The Detrimental Effect on Norm Enforcement," Management Science, INFORMS, vol. 56(1), pages 57-70, January.
  4. Armin Falk & Michael Kosfeld, . "The Hidden Costs of Control," IEW - Working Papers 250, Institute for Empirical Research in Economics - University of Zurich.
  5. Tyran, Jean-Robert, 2003. "Behavioral Game Theory. Experiments in Strategic Interaction: Colin F. Camerer, Princeton University Press, Princeton, New Jersey, 2003, p. 550, Price $65.00/[UK pound]42.95, ISBN 0-691-09039-4," The Journal of Socio-Economics, Elsevier, vol. 32(6), pages 717-720, December.
  6. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
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