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This paper reports on an experiment studying the effectiveness of two types of mechanisms for promoting trust: pecuniary and non-pecuniary as well as their mutual interaction. Our data provide evidence that both mechanisms significantly enhance trust in comparison to the standard investment game. However, we find that the pecuniary mechanism performs significantly worse than the non-pecuniary one. Our results also point to the fact that pecuniary mechanism, which depends on monetary incentives, can be counterproductive when combined with mechanism which relies primarily on psychological incentives.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0818.pdf
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Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 08/18.

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Length: 29 pages
Date of creation: 29 Oct 2008
Handle: RePEc:cbt:econwp:08/18
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