IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v137y2017icp410-427.html
   My bibliography  Save this article

Trust in third parties

Author

Listed:
  • Eisenkopf, Gerald
  • Nüesch, Stephan

Abstract

Independent decision makers are appointed to promote trust by shielding investors from rent appropriation efforts of insiders. We conduct experiments to show how the appointment procedures for such third parties influence the trust of investors and the actual distributions of returns on investment. We find that when the third party is randomly assigned, investments significantly increase in response to positive returns on investment. Investments are similarly high when insiders select anonymous third parties. However, a simple one-sided reputation mechanism between the third party and the insider (but not the investor) diminishes trust and eliminates the benefits of a supposedly independent third party. In a second experiment we show that the trust of investors, evidenced by their investment level, surprisingly does not depend on whether the decision to delegate to an independent third party or not is taken by insiders themselves or exogenously imposed by a random device.

Suggested Citation

  • Eisenkopf, Gerald & Nüesch, Stephan, 2017. "Trust in third parties," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 410-427.
  • Handle: RePEc:eee:jeborg:v:137:y:2017:i:c:p:410-427
    DOI: 10.1016/j.jebo.2017.03.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167268117300690
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    2. Ernst Fehr & Susanne Kremhelmer & Klaus M. Schmidt, 2008. "Fairness and the Optimal Allocation of Ownership Rights," Economic Journal, Royal Economic Society, vol. 118(531), pages 1262-1284, August.
    3. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    4. Gerald Eisenkopf & Stephan Nüesch, 2016. "Third Parties and Specific Investments," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 17(2), pages 151-172, August.
    5. Falk, Armin & Fischbacher, Urs, 2006. "A theory of reciprocity," Games and Economic Behavior, Elsevier, vol. 54(2), pages 293-315, February.
    6. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    7. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    8. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    9. Tore Ellingsen & Magnus Johannesson, 2004. "Promises, Threats and Fairness," Economic Journal, Royal Economic Society, vol. 114(495), pages 397-420, April.
    10. repec:hrv:faseco:30728046 is not listed on IDEAS
    11. Schniter, Eric & Sheremeta, Roman M. & Sznycer, Daniel, 2013. "Building and rebuilding trust with promises and apologies," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 242-256.
    12. repec:eee:reacre:v:25:y:2013:i:1:p:108-116 is not listed on IDEAS
    13. Fershtman, Chaim & Gneezy, Uri, 2001. "Strategic Delegation: An Experiment," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 352-368, Summer.
    14. John R. Hamman & George Loewenstein & Roberto A. Weber, 2010. "Self-Interest through Delegation: An Additional Rationale for the Principal-Agent Relationship," American Economic Review, American Economic Association, vol. 100(4), pages 1826-1846, September.
    15. Kaplan, Steven E. & Mauldin, Elaine G., 2008. "Auditor rotation and the appearance of independence: Evidence from non-professional investors," Journal of Accounting and Public Policy, Elsevier, vol. 27(2), pages 177-192.
    16. Tore Ellingsen & Magnus Johannesson, 2004. "Is There a Hold-up Problem?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 475-494, October.
    17. Rajna Gibson & Carmen Tanner & Alexander F. Wagner, 2013. "Preferences for Truthfulness: Heterogeneity among and within Individuals," American Economic Review, American Economic Association, vol. 103(1), pages 532-548, February.
    18. Cox, James C. & Friedman, Daniel & Gjerstad, Steven, 2007. "A tractable model of reciprocity and fairness," Games and Economic Behavior, Elsevier, vol. 59(1), pages 17-45, April.
    19. Nava Ashraf & Iris Bohnet & Nikita Piankov, 2006. "Decomposing trust and trustworthiness," Experimental Economics, Springer;Economic Science Association, vol. 9(3), pages 193-208, September.
    20. Johnson, Noel D. & Mislin, Alexandra A., 2011. "Trust games: A meta-analysis," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 865-889.
    21. Björn Bartling & Urs Fischbacher, 2012. "Shifting the Blame: On Delegation and Responsibility," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 67-87.
    22. Gerald Eisenkopf & André Bächtiger, 2013. "Mediation and Conflict Prevention," Journal of Conflict Resolution, Peace Science Society (International), vol. 57(4), pages 570-597, August.
    23. Hackett, Steven C, 1994. "Is Relational Exchange Possible in the Absence of Reputations and Repeated Contact?," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 360-389, October.
    24. Hessel Oosterbeek & Joep Sonnemans & Susan van Velzen, 2003. "The need for marriage contracts: An experimental study," Journal of Population Economics, Springer;European Society for Population Economics, vol. 16(3), pages 431-453, August.
    25. Muller, Laurent & Sefton, Martin & Steinberg, Richard & Vesterlund, Lise, 2008. "Strategic behavior and learning in repeated voluntary contribution experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 782-793, September.
    26. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
    27. repec:cup:apsrev:v:103:y:2009:i:02:p:248-263_09 is not listed on IDEAS
    28. Frauke Lammers, 2010. "Fairness in Delegated Bargaining," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(1), pages 169-183, March.
    29. Lucas C. Coffman, 2011. "Intermediation Reduces Punishment (and Reward)," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 77-106, November.
    30. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
    31. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Third parties; Trust; Specific investments; Residual control; Experiment;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:137:y:2017:i:c:p:410-427. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jebo .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.