Carry a big stick, or no stick at all: punishment and endowment heterogeneity in the trust game

Calabuig, Vicente and Fatas, Enrique and Olcina, Gonzalo and Rodriguez-Lara, Ismael (2016) Carry a big stick, or no stick at all: punishment and endowment heterogeneity in the trust game. Journal of Economic Psychology, 57 . pp. 153-171. ISSN 0167-4870

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Abstract

We investigate the effect of costly punishment in a trust game with endowment heterogeneity. Our findings indicate that the difference between the investor and the allocator’s initial endowments determines the effect of punishment on trust and trustworthiness. Punishment fosters trust only when the investor is wealthier than the allocator. Otherwise, punishment fails to promote trusting behavior. As for trustworthiness, the effect is just the opposite. The higher the difference between the investor and the allocator’s initial endowments, the less willing allocators are to pay back. We discuss the consistency of our findings with social preference models (like inequality aversion, reciprocity), the capacity of punishment (i.e., the deterrence hypothesis) and hidden costs of punishment (i.e., models of intrinsic and extrinsic motivation). Our results are hardly coherent with the first two (inequality aversion and deterrence), but roughly consistent with the latter.

Item Type: Article
Keywords (uncontrolled): Trust game, endowment heterogeneity, punishment, deterrence hypothesis, crowding-out, intrinsic and extrinsic motivation, experimental economics. JEL Codes: C91, D02, D03, D69.
Research Areas: A. > Business School > Economics
Item ID: 20685
Useful Links:
Depositing User: Ismael Rodriguez-Lara
Date Deposited: 30 Sep 2016 15:38
Last Modified: 19 Apr 2017 13:53
URI: http://eprints.mdx.ac.uk/id/eprint/20685

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