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.
|Number of pages||27|
|Journal||Journal of Institutional and Theoretical Economics|
|Early online date||23 Mar 2020|
|Publication status||Published - Sep 2020|
- institutional design