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Favor trading in public good provision

Published online by Cambridge University Press:  14 March 2025

Sarah Jacobson  and
Ragan Petrie
Sarah Jacobson*
Affiliation:
Department of Economics, Williams College, 24 Hopkins Hall Dr., Williamstown, MA 01267, USA
Ragan Petrie*
Affiliation:
Interdisciplinary Center for Economic Science (ICES), George Mason University, 4400 University Drive, MSN 1B2, Fairfax, VA 22030, USA
*
Sarah.A.Jacobson@williams.edu
rpetrie1@gmu.edu
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Abstract

Favor trading is common. We do something nice for someone and they do something nice in return. Several motives might underlie such behavior, including altruism, strategic motives, and direct or indirect positive reciprocity. It is not yet well-understood how these fit together to affect behavior, how they interact in various institutional structures, and how they play out over time. We use a laboratory experiment to study the elements and dynamics of favor trading in a particular setting: the private provision of a public good. In our experiment, giving subjects the ability to practice targeted reciprocity by making a simple, low-cost change in information provision increases contributions to the public good by 14 %. Subjects reward group members who have previously been generous to them and withhold rewards from ungenerous group members. Strategic concerns cannot explain all of this behavior, and it must be at least partly due to direct reciprocity. When someone cannot directly benefit from favor trading, he gives much less to the public good. People thus excluded from the “circle of reciprocity” provide a clean and strict test of indirect reciprocity. Contrary to previous studies in the literature, we do not observe indirect reciprocity.

Keywords

Public goodsDirect and indirect reciprocityExperimentPeer-to-peer fundraising

JEL classification

H41: Public Goods D01: Microeconomic Behavior: Underlying Principles C92: Laboratory, Group Behavior
Type
Original Paper
Information
Experimental Economics , Volume 17 , Issue 3 , September 2014 , pp. 439 - 460
Copyright
Copyright © 2013 Economic Science Association

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Footnotes

Electronic Supplementary Material The online version of this article (doi:https://doi.org/10.1007/s10683-013-9377-5) contains supplementary material, which is available to authorized users.

James Cox, Vjollca Sadiraj, and participants in various workshops, conferences, and seminars (notably at Georgia State University) provided helpful comments. We thank the National Science Foundation (Award SES-0752754) and Georgia State University for funding this research.

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