Reputation and Cooperation in Voluntary Exchanges: Comparing Local and Central Institutions
16 Pages Posted: 3 Apr 2009
Date Written: March 31, 2009
Our experimental study compares the effectiveness of three reputation mechanisms believed to enhance cooperation. Groups of 14 subjects repeatedly select partners, play two-person prisoner's dilemmas, and rely only on individual experience to find trustworthy exchange partners in the baseline condition. The local condition represents emergent, bottom-up networks that allow partners to voluntarily share recommendations. The central condition represents designed, top-down institutions that allow wide dissemination of recommendations provided voluntarily. Surprisingly, the greater provision and use of information in the local condition supports the highest level of cooperation, suggesting an unrecognized advantage of exchange networks over centralized institutions in credibility and information provision.
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