A Peek Behind the Curtain that Conceals Self-Dealing
43 Pages Posted: 2 Jun 2014
Date Written: May 31, 2014
Because successful self-dealing cannot be observed in naturally occurring data, we conduct an experiment where self-dealing emerges endogenously along with concealment strategies. We show that subjects can profitably self-deal while fashioning complex strategies that include opacity-preserving resource divisions and misleading direct communication that can build false trust in partners that can be later exploited. These strategies also entail profit skimming that has the paradoxical effect of reducing private gains from self-dealing. Ultimately, self-dealing occurs frequently in economies that generate larger social gains from exchange than economies where hard information provision leads to fully transparent resource allocation.
Keywords: self dealing, deception
JEL Classification: C72, C91, D82, M41
Suggested Citation: Suggested Citation