 Exchange in the Absence of Legal Enforcement: Reputation and Multilateral Punishment under UncertaintyAidin Hajikhameneh and Jared Rubin The Journal of Law, Economics, and Organization, 2019, vol. 35, issue 1, 192-237 Abstract: Principal–agent problems can reduce gains from exchange available in long distance trade. One solution historically used to mitigate such problems is multilateral punishment, whereby groups of principals jointly punish cheating agents by giving them bad reputations. But how does such punishment work when there is uncertainty regarding whether an agent actually cheated or was just the victim of bad luck? And how might such uncertainty be mitigated—or exacerbated—by non-observable, pro-social behavioral characteristics? We address these questions by designing a simple modified trust game with uncertainty and the capacity for principals to employ multilateral punishment. Our experimental results indicate that a modest amount of uncertainty has little effect on overall welfare: while part of the surplus is destroyed by uncertainty, principals are also more willing to trust agents with bad reputations, thereby increasing the frequency of welfare-enhancing exchange. JEL-codes: C91 C92 D02 D83 F10 N70 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:35:y:2019:i:1:p:192-237. Ordering information: This journal article can be ordered from Access Statistics for this article The Journal of Law, Economics, and Organization is currently edited by Andrea Prat More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. |
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