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When is Trust Robust?

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Abstract

We examine an economy in which interactions are more productive if agents can trust others to refrain from cheating. Some agents are scoundrels, who always cheat, while others cheat only if the cost of cheating, a decreasing function of the proportion of cheaters, is sufficiently low. The economy exhibits multiple equilibria. As the proportion of scoundrels in the economy declines, the high-trust equilibrium can be disrupted by arbitrarily small perturbations or infusions of low-trust agents, while the low-trust equilibrium becomes impervious to perturbations and infusions of high-trust agents. The resilience of trust may thus hinge upon the prevalence of scoundrels.

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  • Luca Anderlini & Larry Samuelson & Daniele Terlizzese, 2024. "When is Trust Robust?," CSEF Working Papers 710, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:710
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    Keywords

    Trust; Robustness; Fragility; Assimilation; Disruption.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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