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Fairness and Retaliation: The Economics of Reciprocity

  • Ernst Fehr
  • Simon Gaechter

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 incentive inefficient because the incentives may crowd out voluntary co-operation. It strongly limits the effects to 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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 336.

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Date of creation: 2000
Date of revision:
Handle: RePEc:ces:ceswps:_336
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