Cooperation and Trustworthiness in Repeated Interaction

Public goods provision often involves groups of contributors
repeatedly interacting with administrators who can extract rents
from the pool of contributions. We suggest a novel identification
approach that exploits the sequential ordering of decisions in a
panel vector autoregressive model to study social interactions in
the laboratory. Despite rent extraction, contributors and
administrators establish a stable interaction with cooperation
matching the level from a comparable Public Goods Game. In the
short run, temporary changes in behavior trigger substantial
behavioral multiplier effects. We demonstrate that cooperation
breeds trustworthiness and vice versa and that one-time disruptions
are particularly damaging in settings with a lack of cooperative
attitudes and trust.