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American Economic Journal: Microeconomics: Vol. 5 No. 2 (May 2013)

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Trust, Reciprocity, and Favors in Cooperative Relationships

Article Citation

Abdulkadiro─člu, Atila, and Kyle Bagwell. 2013. "Trust, Reciprocity, and Favors in Cooperative Relationships." American Economic Journal: Microeconomics, 5(2): 213-59.

DOI: 10.1257/mic.5.2.213

Abstract

We study trust, reciprocity, and favors in a repeated trust game with private information. In our main analysis, players are willing to exhibit trust and thereby facilitate cooperative gains only if such behavior is regarded as a favor that must be reciprocated, either immediately or in the future. The size of a favor owed may decline over time, following neutral periods. Indeed, a favor-exchange relationship with this feature improves on a simple favor-exchange relationship. In some settings, an infrequent and symmetric punishment sustains greater cooperation. A honeymoon period followed by favor-exchange or symmetric punishment can also offer scope for improvement. (JEL C73, D82, Z13)

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Authors

Abdulkadiro─člu, Atila (Duke U)
Bagwell, Kyle (Stanford U)

JEL Classifications

C73: Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
D82: Asymmetric and Private Information; Mechanism Design
Z13: Economic Sociology; Economic Anthropology; Social and Economic Stratification

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