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Trust and Reciprocity with Transparency and Repeated Interactions

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Author Info
Kiridaran Kanagaretnam
Stuart Mestelman
S.M.Khalid Nainar
Mohamed Shehata

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Abstract

This paper uses data from a controlled laboratory environment to study the impact of transparency (i.e., complete information versus incomplete information) and repeated interactions on the level of trust and trustworthiness in an investment game setting. The key findings of the study are that transparency (complete information) significantly increases trusting behavior in one-shot interactions. This result persists in repeated interactions. Further, transparency appears important for trustworthiness in one-shot interactions. In addition, repeated interaction increases trust and reciprocity with or without transparency. These results suggest transparency is important in building trust in business environments such as alliances and joint-ventures which are loosely connected organizational forms that bring together otherwise independent firms. It also provides support for the Sarbanes-Oxley Act of 2002 (SOX) and similar legislation elsewhere which attempt to regain investors’ trust in corporate management and financial markets by stipulating enhanced disclosures.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2009-03.pdf
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Publisher Info
Paper provided by McMaster University in its series Department of Economics Working Papers with number 2009-03.

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Length: 30 pages
Date of creation: May 2009
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Handle: RePEc:mcm:deptwp:2009-03

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Related research
Keywords: Transparency; Trust; Reciprocity; Repeated interaction; Business Alliances; SOX;

Find related papers by JEL classification:
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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This page was last updated on 2009-11-12.

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