Theories of Fairness and Reciprocity

Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research

Public Choice and Altruism

The public choice literature has paid little attention to altruism, and the few works that do deal with it usually focus on the tradeoff between selfish and unselfish preferences, assuming some shared set of unselfish preferences. This focus leaves the question open as to whether unselfish but conflicting beliefs can be the source of public choice problems. This paper examines conflicting ethical beliefs among purely altruistic individuals to show that many of the problems that appear to go away if people are altruistic (assuming notions of the public interest are shared) return if notions of the public interest conflict no matter how altruistic people may be.Altruism

Theories of Fairness and Reciprocity – Evidence and Economic Applications

Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research.Behavioral economics, fairness, reciprocity, altruism, experiments, incentives, contracts, competition

Theories of Fairness and Reciprocity

Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to point out open questions, and to suggest avenues for future research.Behavioral Economics ; Fairness ; Reciprocity ; Altruism ; Experiments ; Incentives ; Contracts ; Competition

What Is Neoclassical Economics? The three axioms responsible for its theoretical oeuvre, practical irrelevance and, thus, discursive power

This paper offers a precise definition of neoclassical economics based on three axioms which lie at the latters foundations. This definition is all inclusive in that it applies as much to the neoclassical economic models of the late 19th century as it does to todays more flexible and inclusive models. The paper argues that these axioms, simultaneously, (a) provide the foundation for neoclassicisms discursive success within the social sciences and (b) are the deep cause of its theoretical failure. Moreover, (a) and (b) reinforce one another as neoclassicisms discursive power (which is largely due to the hidden nature of its three foundational axioms) makes it even less likely that it will con-duct an open, pluralist debate on its theoretical foundations (i.e. the three axioms which underpin it).Neoclassical economics, Methodological individualism, Methodological instrumentalism, Methodological equilibration.

Collusion and Reciprocity in Infinitely Repeated Games

This paper extends the standard industrial organization models of repeated interaction between firms by incorporating preferences for reciprocity. A reciprocal firm responds to unkind behavior of rivals with unkind actions (destructive reciprocity), while at the same time, it responds to kind behavior of rivals with kind actions (constructive reciprocity). The main finding of the paper is that, for plausible perceptions of fairness, preferences for reciprocity facilitate collusion in infinitely repeated market games, that is, the critical discount rate at wish collusion can be sustained tends to be lower when firms have preferences for reciprocity than when firms are selfish. The paper also finds that the best collusive outcome that can be sustained in the infinitely repeated Cournot game with reciprocal firms is worse for consumers than the best collusive outcome that can be sustained in the infinitely repeated Cournot game with selfish firms.

An axiomatic approach to the measurement of envy

We characterize a class of envy-as-inequity measures. There are three key axioms. Decomposability requires that overall envy is the sum of the envy within and between subgroups. The other two axioms deal with the two-individual setting and specify how the envy measure should react to simple changes in the individuals’ commodity bundles. The characterized class measures how much one individual envies another individual by the relative utility difference (using the envious’ utility function) between the bundle of the envied and the bundle of the envious, where the utility function that must be used to represent the ordinal preferences is the ‘ray’ utility function. The class measures overall envy by the sum of these (transformed) relative utility differences. We discuss our results in the light of previous contributions to envy measurement and multidimensional inequality measurement

The Economics of Fairness, Reciprocity and Altruism – Experimental Evidence and New Theories

This paper surveys recent experimental and field evidence on the impact of concerns for fairness, reciprocity and altruism on economic decision making. It also reviews some new theoretical attempts to model the observed behavior.Behavioural Economics; Other-regarding Preferences; Fairness; Reciprocity; Altruism; Experiments; Incentives; Contracts; Competition

Incorporating Ethics into Economics: Problems and Possibilities

In traditional economics the decision-making process for individuals has effectively no role for ethics as individuals are self-interested. The key concepts in economics which determine the role of ethics in the decision-making process are utility, rationality and methodological individualism and hence how these can be and are formulated and combined determines different roles for ethics in economics. Amitai Etzioni, Amartya Sen and John Broome use different definitions of these concepts and hence find different problems and possibilities for a greater role for ethics in economics. This paper integrates the different approaches of these authors and suggests a general mono-utility framework for incorporating ethics into economics whereby the concept of utility requires adaptation