Sequential versus Simultaneous Trust

Till Gross (), Maroš Servátka and Radovan Vadovič

Journal of Institutional and Theoretical Economics (JITE), 2020, vol. 176, issue 3, 446-472

Abstract: We examine theoretically and experimentally the implications of trust arising under sequential and simultaneous designs, where one player makes an investment choice, and another player decides whether to share the investment gains. We show analytically that in some cases the sequential design may be outperformed by the simultaneous design. In an experiment we find that the investment levels and sharing rates are higher in the sequential design, but there are no corresponding differences in beliefs. We conjecture that this happens because in the sequential design substantially more trust is necessary to induce cooperation. Our data strongly support this conjecture.

Keywords: trust; investment; efficiency; institutional design (search for similar items in EconPapers)
JEL-codes: C9 D02 D9 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1628/jite-2020-0033

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