Transparency, Empowerment, Disempowerment and Trust in an Investment Environment

In a laboratory-controlled environment we provide experimental evidence on the effects of transparency (complete rather than incomplete information) and empowerment on trust (investment by a principal) and trustworthiness (reciprocal behavior of an agent). We implement a simple two-person investment game. We find that when principals are empowered by being able to punish agents who may not act in a way the principal believes is in the …