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Choosing the agent's group identity in a trust game with delegated decision making

Alexander Zimper and Nicky Nicholls

Journal of Public Economic Theory, 2020, vol. 22, issue 1, 220-244

Abstract: Members of a given social group often favor members of their own group identity over people with different group identities. We construct a trust game in which the principal delegates the decision about an investment into a receiver to an agent who either favors the principal's or the receiver's group identity. When choosing the agent's group identity the principal faces a trade‐off between a loyal agent and an agent who might increase the receiver's willingness to cooperate. We solve for the principal's decision in a subgame‐perfect nash equilibrium for the two scenarios of a risk‐neutral and risk‐averse agent, respectively.

Date: 2020
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Handle: RePEc:bla:jpbect:v:22:y:2020:i:1:p:220-244