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Carry a big stick, or no stick at all An experimental analysis of trust and capacity of punishment

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  • Vicente Calabuig

    ()
    (ERICES, Universidad de Valencia)

  • Enrique Fatas

    ()
    (University of East Anglia)

  • Gonzalo Olcina

    ()
    (ERICES, Universidad de Valencia)

  • Ismael Rodriguez-Lara

    ()
    (ERICES, Universidad de Valencia)

Abstract

We investigate the effect of punishment in a trust game with endowment heterogeneity in which the investor may punish the allocator at a cost. Our results indicate that the effect of the punishment crucially depends on the investor’s capacity of punishment, that is measured in our experiment by the proportion of the allocator’s payoffs that the investor can destroy. We find that punishment fosters trust when the capacity of punishment is high (i.e., when the cost of punishing is relatively low). Otherwise, punishment fails to promote trusting behavior, crowding out intrinsic motivation to trust. Trustworthiness is higher with punishment than without punishment, except if investors have a high capacity of punishment

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File URL: http://www.uv.es/erices/RePEc/WP/2013/0413.pdf
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Bibliographic Info

Paper provided by University of Valencia, ERI-CES in its series Discussion Papers in Economic Behaviour with number 0413.

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Date of creation: Aug 2013
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Handle: RePEc:dbe:wpaper:0413

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Keywords: Trust game; punishment; crowding-out; intrinsic and extrinsic motivation; experimental economics;

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