IDEAS home Printed from
   My bibliography  Save this paper

Trust, Reciprocity and Institutional Design: Lessons from Behavioural Economics


  • Pelligra, Vittorio

    () (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)


Trust and reciprocity are the bond of society (Locke), but economic agents are both self-interested and intrinsically untrustworthy. These assumptions impair severely economists' accounts of social relationships. The paper examines strategies to escape this paradox by enlarging our conception of rationality: the assumptions of self-interest and consequentialism are critically discussed as well as relational behavioural principles (e.g. trust and reciprocity). The implications of this enlarged kind of rationality are particularly important for agency theory. The paper analyses, within this framework, the working of two different kinds of incentive mechanisms, namely intra-personal and interpersonal, and discusses experimental results that emphasise the empirical relevance of the latter. Besides providing a more descriptively adequate picture of agency, such mechanisms have important normative implications. In this respect some of the conditions that affect the process of accumulation and erosion of trust and social capital are explored. The tension between rules and trust turns out to be not inescapable, though it calls for a changing in the designing logic of institutions and contracts. I shall discuss what are the changes needed in order to implement a trust-enhancing activity of institutional design.

Suggested Citation

  • Pelligra, Vittorio, 2006. "Trust, Reciprocity and Institutional Design: Lessons from Behavioural Economics," AICCON Working Papers 37-2006, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  • Handle: RePEc:ris:aiccon:2006_037

    Download full text from publisher

    File URL:
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    1. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
    2. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
    3. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-755, September.
    4. Robert Gibbons, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-132, Fall.
    5. Ernst Fehr & John A. List, 2004. "The Hidden Costs and Returns of Incentives-Trust and Trustworthiness Among CEOs," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 743-771, September.
    6. Pelligra Vittorio, 2002. "Rispondenza fiduciaria: principi e implicazioni per la progettazione istituzionale," Stato e mercato, Società editrice il Mulino, issue 2, pages 335-358.
    7. Bruno S. Frey & Iris Bohnet, 1999. "Social Distance and Other-Regarding Behavior in Dictator Games: Comment," American Economic Review, American Economic Association, vol. 89(1), pages 335-339, March.
    8. Nelson, William Jr., 2002. "Equity or intention: it is the thought that counts," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 423-430, August.
    9. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
    10. Michael Bacharach & Gerardo A. Guerra, 2001. "Is Trust Self-Fulfilling? An Experimental Study," Economics Series Working Papers 76, University of Oxford, Department of Economics.
    11. Barkema, Harry G, 1995. "Do Top Managers Work Harder When They Are Monitored?," Kyklos, Wiley Blackwell, vol. 48(1), pages 19-42.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Incentives; reciprocity; trust; crowding-out; institutional design;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:aiccon:2006_037. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paolo Venturi). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.