Trust, reputation and relationships in grazing rights markets: An experimental economic study

Trust is frequently a requirement for economic exchanges and the management of natural resources. Providing public information on past actions can promote trust through the formation of reputations. We developed an economic experiment to test whether a formal reputation mechanism could facilitate trusting relationships in the tradable grazing rights markets. Providing information to create formal public reputations for market participants did not increase the overall efficiency of the market. However, it did result in greater equality of income between partners, suggesting that participants showed more concern for their partners when they knew they would be rated. Even with public reputation information, bilateral relationships remained central to the market. Market failures in existing grazing rights markets may be better addressed by measures to increase communication between partners rather than simply relying on a formal reputation mechanism.

Research Highlights► We experimentally test the impact of reputation on trust in grazing rights markets. ► Creating formal public reputations did not increase the overall efficiency of the market. ► However it did result in participants acting more equitably. ► Even with public reputations, ongoing bilateral relationships were predominant. ► Improved communication may assist markets more than formal reputation mechanisms.