We Can Be Heroes Trust and Resilience in Corrupted Economic Environments

Abstract

We use an original variant of the standard trust game, in order to study the effect of corruption on trust and trustworthiness. In this game, both the trustor and the trustee know that part of the surplus they can generate may be captured by a third “corrupted” player under different expected costs of audit and prosecution. We find slightly higher trustor’s giving in presence of corruption, matched by a significant effect of excess reciprocity from the trustee. Both the trustor and the trustee expect on average corruption acting as a tax, inelastic to changes in the risk of corruptor audit. Expectations are correct for the inelasticity assumption, and for the actual value of the “corruption tax”. Our experimental findings lead to the rejection of four standard hypotheses based on purely self-regarding preferences. We discuss how the apparently paradoxical excess reciprocity effect is consistent with the cultural role of heroes in history where examples of commendable giving were used to stimulate emulation of the ordinary people. Our results suggest that the excess reciprocity component of the trustee makes trustor’s excess giving a rational and effective strategy.

Keywords: corruption, extended trust game, lab experiment

JEL Classification: C72, C91