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Trust, Reciprocity and Rules

  • Thomas A. Rietz

    (Henry B. Tippie College of Business, University of Iowa)

  • Eric Schniter

    ()

    (Economic Science Institute, Chapman University)

  • Roman M. Sheremeta

    (Argyros School of Business and Economics, Chapman University)

  • Timothy W. Shields

    (Argyros School of Business and Economics, Chapman University)

In the absence of enforceable contracts, many economic and personal interactions rely on trust and reciprocity. Research shows that although this reliance often works well, sometimes it breaks down. Simple rules mandating minimum standards on reciprocation prevent the most egregious trust violations, but may also undermine behavior that would have otherwise produced higher overall economic welfare. We test the efficacy of exogenously imposed minimum return rules using experimental trust games. We find that rules fail to increase trust and trustworthiness. Thus low minimum standards significantly decrease economic welfare. Although sufficiently restrictive rules restore welfare, trust and trustworthy behavior never returns.

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File URL: http://www.chapman.edu/ESI/wp/Schniter-Sheremeta-Shields_TrustReciprocityandRules.pdf
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Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 11-06.

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Length: 50 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:chu:wpaper:11-06
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  1. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  2. Mellström, Carl & Johannesson, Magnus, 2005. "Crowding Out in Blood Donation: Was Titmuss Right?," Working Papers in Economics 180, University of Gothenburg, Department of Economics, revised 08 Feb 2008.
  3. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  4. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  5. Tyran, Jean-Robert, 2003. "Behavioral Game Theory. Experiments in Strategic Interaction: Colin F. Camerer, Princeton University Press, Princeton, New Jersey, 2003, p. 550, Price $65.00/[UK pound]42.95, ISBN 0-691-09039-4," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(6), pages 717-720, December.
  6. Andreas Fuster & Stephan Meier, 2009. "Another hidden cost of incentives: the detrimental effect on norm enforcement," Working Papers 09-2, Federal Reserve Bank of Boston.
  7. David Dickinson & Marie-Claire Villeval, 2005. "Does Monitoring Decrease Work Effort? The Complementarity Between Agency and Crowding-Out Theories," Working Papers 05-12, Department of Economics, Appalachian State University.
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