Journal of Economic Perspectives: Vol. 14 No. 3 (Summer 2000)

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Fairness and Retaliation: The Economics of Reciprocity

Article Citation

Fehr, Ernst, and Simon Gächter. 2000. "Fairness and Retaliation: The Economics of Reciprocity." Journal of Economic Perspectives, 14(3): 159-181.

DOI: 10.1257/jep.14.3.159

Abstract

This paper shows that reciprocity has powerful implications for many economic domains. It is an important determinant in the enforcement of contracts and social norms and enhances the possibilities of collective action greatly. Reciprocity may render the provision of explicit incentive inefficient because the incentives may crowd out voluntary co-operation. It strongly limits the effects of competition in markets with incomplete contracts and gives rise to noncompetitive wage differences. Finally, reciprocity it is also a strong force contributing to the existence of incomplete contracts.

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Authors

Fehr, Ernst (U Zurich)
Gächter, Simon (U Zurich)

JEL Classifications

D63: Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D12: Consumer Economics: Empirical Analysis
Z13: Economic Sociology; Economic Anthropology

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