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Reciprocity as a contract enforcement device: experimental evidence

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Author Info

  • Georg Kirchsteiger
  • Ernst Fehr
  • Simon Gächter

Abstract

Numerous experimental studies indicate that people tend to reciprocate favors and punish unfair behavior. It is hypothesized that these behavioral responses contribute to the enforcement of contracts and increase gains from trade. It turns out that, if only one side of the market has opportunities for reciprocal responses, the impact of reciprocity on contract enforcement depends on the details of the pecuniary incentive system. If both sides of the market have opportunities for reciprocal responses, robust and powerful reciprocity effects occur. In particular, reciprocal behavior causes a substantial increase in the set of enforceable actions and large efficiency gains.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/5911.

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Date of creation: Jul 1997
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Publication status: Published in: Econometrica (1997) v.65 n° 4,p.833-860
Handle: RePEc:ulb:ulbeco:2013/5911

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  1. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
  2. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May.
  3. repec:fth:prinin:345 is not listed on IDEAS
  4. Guth, Werner, 1995. "An Evolutionary Approach to Explaining Cooperative Behavior by Reciprocal Incentives," International Journal of Game Theory, Springer, vol. 24(4), pages 323-44.
  5. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
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