In a Transparent Government We Trust an Experimental Study of Reputation, Transparency and Compliance

We study transparency and reputation in a stylized investment game in which two senders interact with a receiver in a linear network. We analyse how ex-ante information (compatible with receiver’s reputation building) and ex-post information (making the receiver’s decisions transparent) make senders and receivers comply with an exogenous, fair and non-binding rule. In the reputation treatment, senders know the average amount returned by the receiver to both senders in the previous period. In the transparency treatment, senders are aware of the amount received back by the other sender in the network. Relative to a baseline treatment in which senders are only informed about their own actions and outcomes, ex-ante and ex-post information disclosure have very different effects on trust. While reputation helps some receivers, aggregate trust does not significantly increase in the reputation condition. Transparency generates a large and significant increase in trust (amounts sent are 27% above the ones chosen in reputation), being the effect largely driven by a sustained and large reduction of senders choosing not to trust at all (56% less in transparency than in reputation in the second half of the experiment). Across all treatments and roles, the non-binding rule significantly and positively shapes individual decisions