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Contracting in the trust game

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  • Juergen, Bracht

Abstract

We present a simple mechanism that can be implemented in a simple experiment. In a modified trust game, the allocator can offer to pay the investor to cooperate. The mechanism is successful at implementing efficient outcomes: participants manage to achieve an efficient outcome, when this is possible, two—thirds of the time. While these results are encouraging, we find evidence that both concerns for fairness and motivation crowding out distort the incentives presented in the mechanism.

Suggested Citation

  • Juergen, Bracht, 2010. "Contracting in the trust game," MPRA Paper 24136, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24136
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    File URL: https://mpra.ub.uni-muenchen.de/24198/1/MPRA_paper_24198.pdf
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    References listed on IDEAS

    as
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    5. Vesna Prasnikar & Alvin E. Roth, 1992. "Considerations of Fairness and Strategy: Experimental Data from Sequential Games," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 865-888.
    6. Bracht, Juergen & Figuieres, Charles & Ratto, Marisa, 2008. "Relative performance of two simple incentive mechanisms in a public goods experiment," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 54-90, February.
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    9. Ernst Fehr & John A. List, 2004. "The Hidden Costs and Returns of Incentives-Trust and Trustworthiness Among CEOs," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 743-771, September.
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    14. Juergen Bracht & Nick Feltovich, 2006. "Efficiency in the Trust Game: an Experimental Study of Preplay Contracting," The Centre for Market and Public Organisation 06/154, Department of Economics, University of Bristol, UK.
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    More about this item

    Keywords

    compensation mechanism; side payment; trust game; signaling; crowding out; concerns; for equity; taste for cooperation;

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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