Transparency, Efficiency and the Distribution of Economic Welfare in Pass-Through Investment Trust Games

31 Pages Posted: 7 May 2011 Last revised: 25 Jun 2014

See all articles by Thomas Rietz

Thomas Rietz

University of Iowa - Henry B. Tippie College of Business

Roman M. Sheremeta

Case Western Reserve University

Timothy W. Shields

Chapman University - George L. Argyros School of Business & Economics; Chapman University - Economic Science Institute

Vernon L. Smith

Chapman University - Economic Science Institute; Chapman University School of Law

Date Written: December 1, 2011

Abstract

We design an experiment to examine welfare and behavior in a multi-level trust game representing a pass through investment in an intermediated market. In a repeated game, an investor invests via an intermediary who lends to a borrower. A pre-experiment one-shot version of the game serves as a baseline and to type each subject. We alter the transparency of exchanges between non-adjacent parties. We find transparency of the exchanges between the investor and intermediary does not significantly affect welfare. However, transparency regarding exchanges between the intermediary and borrower promotes trust on the part of the investor, increasing welfare. Further, this has asymmetric effects: borrowers and intermediaries achieve greater welfare benefits than investors. We discuss implications for what specific aspects of financial market transparency may facilitate more efficiency.

Keywords: financial intermediation, financial market transparency, pass through securities, multi-level trust games, experiments

JEL Classification: C72, C91, D72, G14, G21

Suggested Citation

Rietz, Thomas A. and Sheremeta, Roman M. and Shields, Timothy W. and Smith, Vernon L., Transparency, Efficiency and the Distribution of Economic Welfare in Pass-Through Investment Trust Games (December 1, 2011). Journal of Economic Behavior and Organization, 94 (2013) 257–267.. Available at SSRN: https://ssrn.com/abstract=1830622 or http://dx.doi.org/10.2139/ssrn.1830622

Thomas A. Rietz (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

C108 PBB, Suite S244
Iowa City, IA 52242-1994
United States
319-335-0856 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://tippie.uiowa.edu/people/profile/profile.aspx?id=195021

Roman M. Sheremeta

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

Timothy W. Shields

Chapman University - George L. Argyros School of Business & Economics ( email )

One University Drive
Orange, CA 92866
United States
714.289.2092 (Phone)

HOME PAGE: http://sites.google.com/site/timothywshields/

Chapman University - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States

Vernon L. Smith

Chapman University - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States
714-628-2830 (Phone)

Chapman University School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States

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