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

Vicente Calabuig, Enrique Fatas, Gonzalo Olcina, Ismael Rodriguez-Lara

Research output: Contribution to journalArticle

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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.
Original languageEnglish
Pages (from-to)153–171
Number of pages19
JournalJournal of Economic Psychology
Volume57
Early online date13 Oct 2016
DOIs
Publication statusPublished - Dec 2016

Keywords

  • Trust game
  • endowment heterogeneity
  • punishment
  • deterrence hypothesis
  • crowding-out
  • intrinsic and extrinsic motivation
  • experimental economics

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