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Please use this identifier to cite or link to this item: http://hdl.handle.net/2108/299

Title: The Economics of the "trust game corporation"
Authors: Becchetti, Leonardo
Pace, Noemi
Keywords: trust game
work incentives
folk theorem
Issue Date: May-2006
Publisher: CEIS
Series/Report no.: Quaderni CEIS; 233
Abstract: We conceive firm productive activity as being crucially determined by the performance of complex tasks which possess the characteristics of trust games. We show that in trust games with superadditivity the non cooperative solution yielding a suboptimal firm output is the Subgame Perfect Nash Equilibrium (SPNE) of the uniperiodal full information game when i) the trustor has superior stand alone contribution to output and ii) the superadditive component is inferior to the sum of trustee and trustor stand alone contributions to output. We show that, if relational preferences of the two players are sufficiently high, the result is reversed. We also document that the Folk Theorem applies to the infinitely repeated game, even in absence of relational preferences, but the enforceable cooperative equilibrium is not renegotiation proof. We finally show that the cooperative equilibrium is not attainable under single winner tournament schemes and that steeper pay for performance schemes may crow...
URI: http://hdl.handle.net/2108/299
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