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Favor Trading in Public Good Provision

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Favor trading is common. We do something nice for someone and they do something nice in return. Several motives might underlie such behavior, including altruism, strategic motives, and direct or indirect positive reciprocity. It is not yet well-understood how these fit together to affect behavior, how they interact in various institutional structures, and how they play out over time. We use a laboratory experiment to study the elements and dynamics of favor trading in a particular setting: the private provision of a public good. In our experiment, giving subjects the ability to practice targeted reciprocity by making a simple, low-cost change in information provision increases contributions to the public good by 14%. Subjects reward group members who have previously been generous to them and withhold rewards from ungenerous group members. Strategic concerns cannot explain all of this behavior, and it must be at least partly due to direct reciprocity. When someone cannot directly benefit from favor trading, he gives much less to the public good. People thus excluded from the “circle of reciprocity” provide a clean and strict test of indirect reciprocity. Contrary to previous studies in the literature, we do not observe indirect reciprocity.

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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2013-03.

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Length: 35 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:wil:wileco:2013-03

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Keywords: public goods; direct and indirect reciprocity; experiment; peer-to-peer fundraising;

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Cited by:
  1. Sarah Jacobson & Jason Delaney, 2013. "Those Outsiders: How Downstream Externalities Affect Public Good Provision," Department of Economics Working Papers 2013-09, Department of Economics, Williams College.
  2. Sarah Jacobson & Jason Delaney, 2012. "The Good of the Few: Reciprocity in the Provision of a Public Bad," Department of Economics Working Papers 2012-02, Department of Economics, Williams College.
  3. Nicholas Wilson, 2012. "Shock to the System: Prevention of Mother-to-Child Transmission of HIV and Child Mortality," Department of Economics Working Papers 2012-03, Department of Economics, Williams College, revised Jul 2013.

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