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  5. Fairness and Retaliation: The Economics of Reciprocity

Fairness and Retaliation: The Economics of Reciprocity

  • Ernst Fehr
  • Simon Gächter
Journal of Economic Perspectives
vol. 14, no. 3, Summer 2000
(pp. 159-181)
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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.

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

JEL Classification

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