Loyalty Without Trust

Renaud Foucart and Jonathan H.W. Tan
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Renaud Foucart: Lancaster University ManagementSchool, UK
Jonathan H.W. Tan: Department of Economics, Nanyang Technological University, Singapore

No 1903, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: We propose and test a model of loyalty in games. Players ca nmutually develop loyalty by working towards a common goal that is Pareto-superior to any Nash equilibrium without it. Loyalty imposes a psychological cost on defecting in an ongoing cooperation, which is sufficient to sustain cooperation. Data on two dynamic games from a field experiment conducted in a Pakistani factory disentangle its effects from reciprocity and strongly support its validity. Loyalty begets cooperation, but unlike reciprocity it does not require individually costly trust. Loyalty holds across games and strengthens with social proximity.

Keywords: loyalty; cooperation; trust; reciprocity; field experiment (search for similar items in EconPapers)
Pages: 20 pages
Date: 2019-03
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Persistent link: https://EconPapers.repec.org/RePEc:nan:wpaper:1903

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