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Trust and Reciprocity with Transparency and Repeated Interactions

  • Kiridaran Kanagaretnam
  • Stuart Mestelman
  • S.M.Khalid Nainar
  • Mohamed Shehata

This paper uses data from a controlled laboratory environment to study the impact of transparency (i.e., complete information versus incomplete information) and repeated interactions on the level of trust and trustworthiness in an investment game setting. The key findings of the study are that transparency (complete information) significantly increases trusting behavior in one-shot interactions. This result persists in repeated interactions. Further, transparency appears important for trustworthiness in one-shot interactions. In addition, repeated interaction increases trust and reciprocity with or without transparency. These results suggest transparency is important in building trust in business environments such as alliances and joint-ventures which are loosely connected organizational forms that bring together otherwise independent firms. It also provides support for the Sarbanes-Oxley Act of 2002 (SOX) and similar legislation elsewhere which attempt to regain investors’ trust in corporate management and financial markets by stipulating enhanced disclosures.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2009-03.pdf
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Paper provided by McMaster University in its series Department of Economics Working Papers with number 2009-03.

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Length: 30 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:mcm:deptwp:2009-03
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  1. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  2. James C. Cox & Cary A. Deck, 2006. "When Are Women More Generous than Men?," Economic Inquiry, Western Economic Association International, vol. 44(4), pages 587-598, October.
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  11. David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
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  15. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
  16. Yilmaz, Cengiz & Kabadayi, Ebru Tumer, 2006. "The role of monitoring in interfirm exchange: Effects on partner unilateral cooperation," Journal of Business Research, Elsevier, vol. 59(12), pages 1231-1238, November.
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