The Economics of Ethics and the Ethics of Economics

The Economics of Ethics and the Ethics of Economics

Values, Markets and the State

Edited by Geoffrey Brennan and Giuseppe Eusepi

This book makes a rational and eloquent case for the closer integration of ethics and economics. It expands upon themes concerned with esteem, self-esteem, emotional bonding between agents, expressive concerns, and moral requirements.

Chapter 11: Cooperation, Reciprocity and Self-esteem: A Theoretical Approach

Marcello Basili and Maurizio Franzini

Subjects: economics and finance, political economy, public choice theory, politics and public policy, political economy, public choice


11. Cooperation, reciprocity and selfesteem: a theoretical approach Marcello Basili and Maurizio Franzini Introduction Cooperation among genetically unrelated agents is widely observed in behavioral experiments and in everyday life, even when repeated interaction is absent. In most cases economic theory does not contemplate it. Basically, cooperation among strangers is ruled out by the usual assumptions of self-interested behavior. Only repeated interaction may reconcile traditional self-interest with cooperation. We lack an explanation of how cooperation can develop among strangers, in a setting potentially open to free-riding and opportunism. Recently, several experiments have expanded our knowledge of important features of cooperative behavior under different circumstances. On the basis of that knowledge, an interesting hypothesis has been proposed: most agents are strong reciprocators, that is, they are ready to punish those who behave opportunistically, even when this is costly to them (Bowles and Gintis, 2004; Gintis et al., 2003; Gintis, 2004). Compared to other possible explanations of cooperation, strong reciprocity seems to enjoy the positive feature, at least from an economist’s point of view, of demanding a rather weak relaxation of the assumption that agents are self-interested. The analytical foundations of strong reciprocity are, however, still unclear. In particular, it has not been demonstrated whether such behavior can be derived from a rational process of maximization. The main goal of this chapter is to offer a possible explanation of strong reciprocity or, more generally, cooperative behavior as the end result of rational decision-making based on utility maximization. In our interpretation, a rational foundation...

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