Fairness and Retaliation: The Economics of Reciprocity
IEER Working Paper No. 40
30 Pages Posted: 28 Jun 2000
Date Written: March 2000
This paper shows that reciprocity has powerful implications for many economic domains. It is an important determinant in the enforcement of contracts and social norms and enhances the possibilities of collective action greatly. Reciprocity may render the provision of explicit incentives inefficient because the incentives may crowd out voluntary co-operation. It strongly limits the effects of competition in markets with incomplete contracts and gives rise to noncompetitive wage differences. Finally, reciprocity it is also a strong force contributing to the existence of incomplete contracts.
JEL Classification: D89
Suggested Citation: Suggested Citation