Ernst Fehr and Simon Gächter, “Fairness and Retaliation: The Economics of Reciprocity.” Journal of Economic Perspectives 14(3): 159-181, Summer, 2000.
• Positive reciprocity is when a kind act is met with kindness in return; negative reciprocity is when an unkind or unfair act is met with retaliation.
• The existence of a subset of reciprocal actors can enforce cooperative norms, though details of the environment will matter as to whether cooperation will out.
• In the Ultimatum Game, offers of less than 30% of the stake often get rejected, indicating that some types of negative reciprocity are common. But some 20 or 30 percent of folks do not reciprocate. People might be a little more likely to be negative reciprocators (punishing unfair acts) than positive reciprocators (rewarding good behavior).
• In some settings, the behavior of reciprocal people and self-interested people eventually becomes indistinguishable, whether for cooperating or free riding; that is, their motives are different, but their actual behaviors can be identical. Opportunities to punish free riders are key to sustaining cooperation.
• Reciprocity can promote contract enforcement.
• The provision of explicit incentives in a contractual relationship can engender mistrust and lead to lessened effort. As a result, firms might prefer incomplete contracts that lead to a sort of “gift exchange” and high effort.
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