Sustaining Group Reputation
AbstractWhen individuals trade with strangers, there is a temptation to renege on contracts. In the absence of repeated interaction or exogenous enforcement mechanisms, this problem can impede valuable exchange. Historically, individuals have solved this problem by forming institutions that sustain trade using group, rather than individual, reputation. Groups can employ two mechanisms to uphold reputation that are generally unavailable to isolated individuals: information sharing and in-group punishment. In this paper, we design a laboratory experiment to distinguish the roles of these two mechanisms in sustaining group reputation and increasing gains from trade. We find that information sharing encourages path dependence via group reputation; good (bad) behavior by individuals results in greater (fewer) gains from exchange for the group in the future. However, the mere threat of in-group punishment is enough to discourage bad behavior, even if punishment is rarely employed. When combined, information sharing and in-group punishment work as complements; the presence of in-group punishment encourages cooperation early on, and information sharing reinforces this behavior over time.
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Bibliographic InfoPaper provided by Chapman University, Economic Science Institute in its series Working Papers with number 13-14.
Length: 58 pages
Date of creation: 2013
Date of revision:
Experimental Economics; Group Reputation; Information; Group Punishment; Gains from Trade; Trust Game; Juries;
Other versions of this item:
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D7 - Microeconomics - - Analysis of Collective Decision-Making
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-22 (All new papers)
- NEP-CBE-2013-05-22 (Cognitive & Behavioural Economics)
- NEP-EVO-2013-05-22 (Evolutionary Economics)
- NEP-EXP-2013-05-22 (Experimental Economics)
- NEP-SOC-2013-05-22 (Social Norms & Social Capital)
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