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.
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Notes
Social favor trading may drive behavior in many cooperative settings. The same dynamic may exist when time and effort are solicited, as in a volunteer advisory board. Klein (1990) argues that peer pressure played a role in the funding of turnpikes in early America. Jackson et al. (2012) show that favor trading can informally enforce contracts (including credit exchanges) within a social network using data from Indian villages, and La Ferrara (2003) discusses the role of intergenerational favor-trading in a similar context of informal credit in Ghana.
As Sobel (2005) discusses, there are many terms to describe reciprocity. We will use phrases like “reciprocal act” to describe all kind acts that seem to respond to a kind act received in the past. We will describe these acts as “strategic” (“instrumental,” per Sobel) if they are self-serving. We will use the phrases “direct reciprocity” and “indirect reciprocity” to describe only acts that are rooted in other-regarding preferences (“intrinsic,” per Sobel).
Non-experimental studies of peer solicitation could suffer from endogeneity. For example, Long (1976) found that the more “personal” a donor solicitation, the more contributions were solicited, but this analysis will likely overestimate this relationship because charities may focus personal solicitations on generous donors. However, Meer and Rosen (2011) find a similar result identified based on a solicitee’s place in an alphabetized list.
Isaac and Norton (2013) study a similar role, which they call an “agent of grace,” and find that the presence of such a person may slightly boost group members’ contributions.
A misplaced application of a strategic reciprocal rule of thumb, i.e. cooperation caused by the mistaken belief that future rewards can be garnered, could also cause late-round reciprocation. Our study is not designed to examine this possibility. This idea is explored in Reuben and Suetens (2012b), who look at conditional cooperation that happens before end-period defection. This can be contrasted with the end-period cooperation we study.
History could also affect current behavior through contagion: a person treated well (badly) in the past could react by behaving well (badly) solely because they have “caught” a good (bad) mood from their experience.
We chose a within-subject design to investigate how an individual’s behavior changes across treatments and to organize the data into subject “types.” Such analysis did not yield interesting results and we do not present it.
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Subjects could not identify which subjects they were interacting with, and the experimenters could not identify which subject made any set of decisions.
There is an order effect in that non-Stakeholder contributions are higher in the Private treatment if the Private treatment is before the Public treatment than if it is not first (43.44 as compared to 27.81 percent of endowment, Mann-Whitney test p=0.002). Because of this, if Private is first, there is no statistical difference between Private and Public non-Stakeholder contributions (paired Wilcoxon signed rank test p=0.368). The Private treatment may be more difficult to understand when presented first. This is supported by the fact that Stakeholder contributions are lower in the Private treatment if the Private treatment is first (93.19 as compared to 98.88 percent of endowment, Mann-Whitney test p=0.000). Our main results are unaffected by this order effect: we exclude those 40 subjects who were in the Private treatment first and all results still hold. Further evidence that our results are robust to these order effects come from parametric tests that control for order. To address any concerns that cross-treatment contamination affects our results, we also find the following if we use only the first treatment a subject experiences (thus losing a great deal of power): Public treatment non-Stakeholder contributions are no longer greater than those in the Private treatment; in Table 2 reciprocal acts are still statistically significant (Wilcoxon signed-rank p<0.01) when all rounds are considered for both the Public and Ineligible treatments but statistical significance is lost when only post-last Stakeholder stint rounds are considered; in Table 3 coefficients are similar but reciprocation loses statistical significance for post-last Stakeholder stint rounds in both Public and Ineligible treatments.
In some treatment-order combinations, we see a small correlation between group members’ non-Stakeholder contributions in an earlier treatment and a subject’s non-Stakeholder contributions in later treatments. This could be caused by contagion, as discussed in footnote 8. However, this could merely reflect the fact that both of these variables should be correlated with a subject’s inherent tendency to contribute. If contagion exists, the effect does not invalidate our results. Treatment effects should be either unaffected or diminished, and our reciprocity result is within-subject-within-treatment so should be unaffected.
Contributions are not strictly 100 %. This could be caused by subject error or myopic inequity aversion. Some (e.g., Saijo and Nakamura 1995) have attributed such patterns to spite.
Tests we report in the paper and tables use subject as unit of observation. If we use very strict tests in which comparisons are done at the group level (average group contributions), we find: in Table 1 the difference between Public and Private contributions is not significant (Mann-Whitney test p=0.471), Table 2 reciprocity results are essentially unchanged, and in Table 3 reciprocal action is still significant (p<0.01).
Simply reporting disaggregated individual contributions, as in our Private treatment, rather than total contributions, increased contributions by 21 % in Sell and Wilson (1991) but had no effect in Croson (2001). Revealing donors’ contributions to each other increases contributions to external charities by 10 % in Soetevent’s (2005) study of church collections, but only for external causes and only temporarily. Andreoni and Petrie (2004) find an increase in giving of 59 % when subjects see a photograph and contribution history for each group member, but no significant increase when only a photograph or only contribution history is revealed.
Non-Stakeholder contributions in the Private treatment are not statistically different between subjects who were Bachelors in the Ineligible treatment and subjects who were not (Mann-Whitney test p=0.507). Similarly, in the Public treatment, subjects who were Bachelors in the Ineligible treatment do not give differently as compared to those who were non-Bachelors in the Ineligible treatment (Mann-Whitney test p=0.653). Subjects who were Bachelors in an early treatment may give less as non-Stakeholder in later treatments than do those who had been non-Bachelors, but this is only significant if the Ineligible treatment is first and if we compare only to the second treatment contributions (15.8 % versus 37.9 % of endowment, Mann-Whitney p=0.038).
To clarify further how the threshold works, suppose that a group contains only subjects i, j, and k. Subject j gave 15 tokens every time i was Stakeholder, and k always gave 2 tokens. Subject i’s average contribution to a generous Stakeholder is his average contribution when j was Stakeholder, and his average contribution to an ungenerous Stakeholder is his average contribution when k was Stakeholder.
Readers who are concerned about the within-subjects design or intra-group correlation should note that this test relies on an individual subject treating members of his group (in a single treatment) in two different ways. Thus this result should be robust to either of those concerns.
Subjects could respond to past actions of the current Stakeholder and the current non-Stakeholders, although their contributions benefit the former three times as much as the latter. If subjects were responding to non-Stakeholders in this way, this would attenuate our within-subject measure of responsiveness to Stakeholder history.
Misplaced reciprocal behavior could happen if subjects believe their behavior in an early treatment can affect outcomes in later treatments. Our finding of reciprocity is robust to this phenomenon because responsiveness is still significant in the Public treatment even when the Public treatment is the last treatment experienced.
In the Ineligible treatment, this group measure also excludes data from the Bachelor (although the same results obtain if the Bachelor’s data is included).
Results change little when errors are clustered by session (of which there are 6) rather than group. Interactions in past treatments could cause inter-group correlation of the error term, but clustering by session removes that concern.
If group level random effects are used (along with individual fixed effects) instead of clustering on group, results change little except that Public post-last Stakeholder stint reciprocity just loses significance (p=0.108).
Bachelors do benefit from a cooperative group, since their payoff is a function of group contributions; however, there is no way for a Bachelor to directly benefit by being nice to previously generous Stakeholder.
For Bachelors, the current Stakeholder’s past generosity is defined by how much the current Stakeholder gave on average as non-Stakeholder in all past rounds.
We also tested whether contributions by non-Bachelor non-Stakeholders in the Ineligible treatment and by non-Stakeholders in the Public treatment were affected by past generosity to self and past generosity to others. Current Stakeholder past contribution to others is indeed significant in a regression; however, we caution against interpreting this as indirect reciprocity for two reasons. First, the correlation between Stakeholder past generosity to self and Stakeholder past generosity to others is high in all cases (although inclusion of this variable does not greatly affect the coefficient on Stakeholder past generosity to self). Second, and more importantly, a person who has been and will be Stakeholder may see someone else’s generosity even in a round in which this subject is not Stakeholder as a signal of how this group member will behave when this subject IS Stakeholder, and thus he may have a great interest in promoting good behavior. A person in this position is far less disinterested than a Bachelor.
Cabral et al. (2012) find that strategic forces are strong in their repeated veto game. As they note, while contributions do decline in final rounds (indicating that strategic concerns matter), they do not decline to zero, so other-regarding preferences play a role there as well.
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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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Jacobson, S., Petrie, R. Favor trading in public good provision. Exp Econ 17, 439–460 (2014). https://doi.org/10.1007/s10683-013-9377-5
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DOI: https://doi.org/10.1007/s10683-013-9377-5