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Theories of Fairness and Reciprocity

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  • Fehr, Ernst
  • Schmidt, Klaus M.

Abstract

Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research.

Suggested Citation

  • Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity," Discussion Papers in Economics 14, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:14
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    References listed on IDEAS

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    Keywords

    Behavioral Economics ; Fairness ; Reciprocity ; Altruism ; Experiments ; Incentives ; Contracts ; Competition;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D0 - Microeconomics - - General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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