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Group Reputations, Stereotypes, and Cooperation in a Repeated Labor Market

In a world of incomplete, unenforceable contracts, both reputation effects and fairness concerns have been suggested as mechanisms capable of avoiding or mitigating market failure. Existing experiments show that labor market failure can be avoided in the absence of individual reputations, apparently due to subjects' other-regarding preferences. This paper introduces a reputation equilibrium with stereotyping (modeled as a belief of type correlation) that predicts cooperation even when individual reputations effects are weak. New experiments show that cooperation emerges when such equilibria are likely to exist, but not when existence is unlikely.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2006-E6.

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Handle: RePEc:cmu:gsiawp:1140898278
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Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890

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