Trust, Reciprocity and Rules

Economic Inquiry, 24 October 2017, Forthcoming

36 Pages Posted: 8 Sep 2011 Last revised: 29 Dec 2017

See all articles by Thomas Rietz

Thomas Rietz

University of Iowa - Henry B. Tippie College of Business

Eric Schniter

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

Roman M. Sheremeta

Case Western Reserve University

Timothy W. Shields

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

Multiple version iconThere are 2 versions of this paper

Date Written: July 19, 2017

Abstract

Many economic interactions rely on trust, which is sometimes violated. The fallout from business fraud and other malfeasance shows serious economic consequences of trust violations. Simple rules mandating minimum standards are attractive because they prevent the most egregious trust violations. However, such rules may undermine more trusting and reciprocal (trustworthy) behavior that otherwise would have occurred and, thus, lead to worse outcomes. We use an experimental trust game to test the efficacy of exogenously imposed minimum standard rules. Rules fail to increase trust and reciprocity, leading to lower economic welfare. Although sufficiently restrictive rules restore welfare, trust and reciprocity never return. The pattern of results is consistent with participants who are not only concerned with payoffs, but also use the game to learn about trust and trustworthiness of others.

Keywords: trust, reciprocity, minimum standards, experiment

JEL Classification: C72, C90, D63, D64, L51

Suggested Citation

Rietz, Thomas A. and Schniter, Eric and Sheremeta, Roman M. and Shields, Timothy W., Trust, Reciprocity and Rules (July 19, 2017). Economic Inquiry, 24 October 2017, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1923831 or http://dx.doi.org/10.2139/ssrn.1923831

Thomas A. Rietz

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

Eric Schniter (Contact Author)

Chapman University - George L. Argyros School of Business and Economics - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States

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

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

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