Community Enforcement of Trust with Bounded Memory

• V Bhaskar ^[1] ; Caroline Thomas ^[1]
  1. [1] University of Texas at Austin

     University of Texas at Austin

     Estados Unidos

     
• Localización: Review of economic studies, ISSN 0034-6527, Vol. 86, Nº 3, 2019, págs. 1010-1032
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • We examine how trust is sustained in large societies with random matching, when records of past transgressions are retained for a finite length of time. To incentivize trustworthiness, defaulters should be punished by temporary exclusion. However, it is profitable to trust defaulters who are on the verge of rehabilitation. With perfect bounded information, defaulter exclusion unravels and trust cannot be sustained, in any purifiable equilibrium. A coarse information structure, that pools recent defaulters with those nearing rehabilitation, endogenously generates adverse selection, sustaining punishments. Equilibria where defaulters are trusted with positive probability improve efficiency, by raising the proportion of likely re-offenders in the pool of defaulters.