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Transparency and empowerment in an investment environment

Author

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  • Kanagaretnam, Kiridaran
  • Mestelman, Stuart
  • Nainar, S.M. Khalid
  • Shehata, Mohamed

Abstract

In a laboratory-controlled environment we provide experimental evidence on the effects of transparency (complete over incomplete information) and empowerment on trust and trustworthiness. We implement a simple version of the standard two-person investment game in a repeated game context with multiple treatments under two information environments. We find that when principals are empowered by being able to penalize agents who may not act in a way the principal believes is in the principal's best interest, the level of trust and investment increases over that which is realized in the absence of empowerment regardless of the degree of transparency. In transparent environments the effect of empowerment is about the same regardless of whether empowerment is introduced or removed. However, in opaque environments, the loss of empowerment has a substantially greater negative effect on trust than the positive effect associated with the introduction of empowerment.

Suggested Citation

  • Kanagaretnam, Kiridaran & Mestelman, Stuart & Nainar, S.M. Khalid & Shehata, Mohamed, 2014. "Transparency and empowerment in an investment environment," Journal of Business Research, Elsevier, vol. 67(9), pages 2030-2038.
    • Handle: RePEc:eee:jbrese:v:67:y:2014:i:9:p:2030-2038
    DOI: 10.1016/j.jbusres.2013.10.007
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    More about this item

    Keywords

    Transparency; Empowerment; Disempowerment; Trust; Reciprocity; Say-on-pay;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D3 - Microeconomics - - Distribution
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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