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Trust, Reciprocity and Rules

Listed author(s):
  • 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
Handle: RePEc:chu:wpaper:11-06
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