Trust, Reciprocity, and Favors in Cooperative Relationships
2013 ◽
Vol 5
(2)
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pp. 213-259
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Keyword(s):
We study trust, reciprocity, and favors in a repeated trust game with private information. In our main analysis, players are willing to exhibit trust and thereby facilitate cooperative gains only if such behavior is regarded as a favor that must be reciprocated, either immediately or in the future. The size of a favor owed may decline over time, following neutral periods. Indeed, a favor-exchange relationship with this feature improves on a simple favor-exchange relationship. In some settings, an infrequent and symmetric punishment sustains greater cooperation. A honeymoon period followed by favor-exchange or symmetric punishment can also offer scope for improvement. (JEL C73, D82, Z13)