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Sustaining Group Reputation

Author

Listed:
  • Erik O. Kimbrough

    (Simon Fraser University)

  • Jared Rubin

    () (Chapman University)

Abstract

When individuals trade with strangers, there is a temptation to renege on contracts. In the absence of repeated interaction or exogenous enforcement mechanisms, this problem can impede valuable exchange. Historically, individuals have solved this problem by forming institutions that sustain trade using group, rather than individual, reputation. Groups can employ two mechanisms to uphold reputation that are generally unavailable to isolated individuals: information sharing and in-group punishment. In this paper, we design a laboratory experiment to distinguish the roles of these two mechanisms in sustaining group reputation and increasing gains from trade. We find that information sharing encourages path dependence via group reputation; good (bad) behavior by individuals results in greater (fewer) gains from exchange for the group in the future. However, the mere threat of in-group punishment is enough to discourage bad behavior, even if punishment is rarely employed. When combined, information sharing and in-group punishment work as complements; the presence of in-group punishment encourages cooperation early on, and information sharing reinforces this behavior over time.

Suggested Citation

  • Erik O. Kimbrough & Jared Rubin, 2013. "Sustaining Group Reputation," Working Papers 13-14, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:13-14
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    File URL: http://www.chapman.edu/research-and-institutions/economic-science-institute/_files/WorkingPapers/rubin-sustaining-group-reputation.pdf
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    Cited by:

    1. Aidin Hajikhameneh & Erik O. Kimbrough, 2017. "Individualism, Collectivism, and Trade," Discussion Papers dp17-01, Department of Economics, Simon Fraser University.
    2. Aidin Hajikhameneh & Jared Rubin, 2017. "Reputation and Multilateral Punishment under Uncertainty," Working Papers 17-14, Chapman University, Economic Science Institute.

    More about this item

    Keywords

    Experimental Economics; Group Reputation; Information; Group Punishment; Gains from Trade; Trust Game; Juries;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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