Theories of Fairness and Reciprocity - Evidence and Economic Applications
University of Zurich - Department of Economics
Klaus M. Schmidt
Ludwig Maximilian University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)
December 23, 2000
CESifo Working Paper Series No. 403; University of Zurich, IEER Working Paper No. 75
Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research.
Number of Pages in PDF File: 59
Keywords: Behavioral Economics, Fairness, Reciprocity, Altruism, Experiments, Incentives, Contracts, Competition
JEL Classification: C7, C9, D0, J3
Date posted: February 9, 2001
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