Transparency, Efficiency and the Distribution of Economic Welfare in Pass-Through Investment Trust Games

Thomas Rietz, Roman Sheremeta, Timothy Shields and Vernon Smith ()
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Thomas Rietz: Henry B. Tippie College of Business, University of Iowa

Working Papers from Chapman University, Economic Science Institute

Abstract: We design an experiment to examine welfare and behavior in a multi-level trust game representing a pass through investment in an intermediated market. In a repeated game, an Investor invests via an Intermediary who lends to a Borrower. A pre-experiment one-shot version of the game serves as a baseline and to type each subject. We alter the transparency of exchanges between non-adjacent parties. We find transparency of the exchanges between the investor and intermediary does not significantly affect welfare. However, transparency regarding exchanges between the intermediary and borrower promotes trust on the part of the investor, increasing welfare. Further, this has asymmetric effects: borrowers and intermediaries achieve greater welfare benefits than investors. We discuss implications for what specific aspects of financial market transparency may facilitate more efficiency.

Keywords: financial intermediation; financial market transparency; pass through securities; multi-level trust games; experiments (search for similar items in EconPapers)
JEL-codes: C72 C91 D72 G14 G21 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2011
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://www.chapman.edu/ESI/wp/Sheremeta-Shields-Trust_Intermediary.pdf (application/pdf)

Related works:
Journal Article: Transparency, efficiency and the distribution of economic welfare in pass-through investment trust games (2013)
Working Paper: Transparency, Efficiency and the Distribution of Economic Welfare in Pass-Through Investment Trust Games (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:11-03

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