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Reciprocity as a Contract Enforcement Device: Experimental Evidence

Author

Listed:
  • Ernst Fehr
  • Simon Gachter
  • Georg Kirchsteiger

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.

Suggested Citation

  • Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
    • Handle: RePEc:ecm:emetrp:v:65:y:1997:i:4:p:833-860
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    References listed on IDEAS

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    1. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 437-459.
    2. Carmichael, H Lorne & MacLeod, W Bentley, 1997. "Gift Giving and the Evolution of Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 485-509, August.
    3. Guth, Werner, 1995. "An Evolutionary Approach to Explaining Cooperative Behavior by Reciprocal Incentives," International Journal of Game Theory, Springer;Game Theory Society, vol. 24(4), pages 323-344.
    4. Lisa Cameron, 1995. "Raising the Stakes in the Ultimatum Game: Experimental Evidence From Indonesia," Working Papers 724, Princeton University, Department of Economics, Industrial Relations Section..
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    8. repec:fth:prinin:345 is not listed on IDEAS
    9. 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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