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Theories of Fairness and Reciprocity - Evidence and Economic Applications

59 Pages Posted: 9 Feb 2001  

Ernst Fehr

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)

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Date Written: December 23, 2000

Abstract

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.

Keywords: Behavioral Economics, Fairness, Reciprocity, Altruism, Experiments, Incentives, Contracts, Competition

JEL Classification: C7, C9, D0, J3

Suggested Citation

Fehr, Ernst and Schmidt, Klaus M., Theories of Fairness and Reciprocity - Evidence and Economic Applications (December 23, 2000). CESifo Working Paper Series No. 403; University of Zurich, IEER Working Paper No. 75. Available at SSRN: https://ssrn.com/abstract=255223

Ernst Fehr

University of Zurich - Department of Economics ( email )

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Zuerich, 8006
Switzerland
+41 1 634 3709 (Phone)
+41 1 634 4907 (Fax)

Klaus M. Schmidt (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

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London, EC1V 3PZ
United Kingdom

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany
+49 89 2180 3405 (Phone)
+49 89 2180 3510 (Fax)

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