Fehr and Gächter: Economics of Reciprocity (Key Points)

Fehr and Gächter's Economics of Reciprocity examines the concept of reciprocity, which they define as the exchange of goods and services in a mutually beneficial relationship. The main points of their analysis include the following: 1. Reciprocity is a relatively common form of exchange, and it can be seen in most societies. This exchange is often based on trust and the expectation of future exchanges. 2. Reciprocity is reinforced by feelings of guilt, embarrassment and the desire to return favors. Over time, different societies have developed social norms around reciprocity, along with rules and conventions. 3. Reciprocity occurs in both informal and formal settings. In informal settings, it often takes the form of small acts of kindness, such as mowing a neighbor's lawn or offering a ride to someone. In formal settings, it usually takes the form of legal contracts or agreements. 4. Reciprocity is economic in nature, as it creates opportunities for individuals and firms to trade goods or services. When reciprocity is broken, it can lead to economic losses, as the trust between two parties may be eroded. 5. For any given situation, reciprocity is likely to have an effect on people's behavior. Experiments have shown that people are willing to repay kind acts and punish those who do not return them. This suggests that reciprocity is a form of natural and