Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jul, 1997, Volume 65, Issue 4

Reciprocity as a Contract Enforcement Device: Experimental Evidence<833:RAACED>2.0.CO;2-E
p. 833-860

Ernst Fehr, Georg Kirchsteiger, Simon Gachter

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, hence, 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, hence, large efficiency gains.

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