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...voluntarily contribute to public goods, and reward trust with trustworthiness even in one-shot interactions. (1)
We examine reciprocity norms and the efficiency implications of such norms in a context different from the typically studied environment, a slum in Nairobi, Kenya. Our context can be characterized as a "reciprocal-exchange economy," where contracts are informally enforced by norms of "balanced reciprocity" obligating future quid-pro-quo repayment of loans (Kranton 1996; Thomas and Worrall 2002). If such norms were internalized, we might expect slum dwellers to adhere to different norms than the person typically studied in the developed world.
To measure reciprocity, we employ a one-shot investment game between anonymous parties (Berg, Dickhaut, and McCabe 1995). In this game, first and second movers are each endowed with S. The first mover sends any amount X [less than or equal to] S to the second mover. X is multiplied by k > 1 by the experimenter to capture the efficiency gains of this transaction. Second movers receive kX and decide how much of it, Y [less than or equal to] S + kX, to return to the first mover. Final payoffs are S - X + Y for the first mover and S + kX - Y for the second mover. X is commonly referred to as "trust," Y/X measures "trustworthiness" (trustworthiness is precluded when first movers send zero), and the relationship between trust and trustworthiness, [partial derivative](Y/X)/[partial derivative]X, represents "reciprocity."
A second mover is said to behave according to a norm of conditional reciprocity if trustworthiness increases with trust--that is, [partial derivative](Y/X)/ [partial derivative]X > (e.g., Camerer and Fehr 2004). A second mover behaves according to a norm of balanced reciprocity if trustworthiness does not vary with trust, that is, if [partial derivative](Y/X)/[partial derivative]X = and if Y/X = 1. Investment game experiments conducted in the developed world typically find support for conditional reciprocity, and often, the money-maximizing strategy is to send everything (for a survey, see Camerer 2003).
We make two predictions. First, we expect not to observe a norm of conditional reciprocity (or expectations, E, thereof) in the Nairobi slums. If the norm of balanced reciprocity were internalized, trust and trustworthiness should not be related in the investment game, that is, [partial derivative](Y/X)/[partial derivative]X = 0. Second movers should return exactly what was sent (Y/X = 1), and first movers should anticipate this (E[Y/X] = i). The norm of balanced reciprocity and expectations thereof leaves amounts sent completely up to first movers' intrinsic willingness to comply with the norm and/or their social (and risk) preferences. Which norms prevail has implications for the gains from trade realized in bilateral exchange. If under conditional reciprocity, Y/X > 1 for some value of X [less than or equal to] S, then the norm of balanced reciprocity induces less trust than conditional reciprocity. (2)
Our second prediction is that compliance with the norm will be gendered. Field research in reciprocal-exchange economies suggests greater norm compliance, the needier one's counterpart is. More specifically, repayment of loans is more likely the needier is the lender (Udry 1994). Thus, one might expect that the norm...
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