Reciprocal Exchange: A Self-Sustaining System
Abstract
Reciprocal exchange, or gift exchange, remains a widespread means of obtaining goods
and services. This paper examines the persistence of reciprocal exchange by formalizing
the interaction between self-enforcing exchange agreements and monetary market exchange.
When more people engage in reciprocal exchange, market search costs increase, reciprocity
is easier to enforce and yields higher utility. Thus, personalized exchange can persist
even when it is inefficient. Conversely, large markets can destroy reciprocity when
reciprocal exchange is efficient. The results characterize the use of personal "connections"
as a system of reciprocal exchange and explain the disappearance of reciprocity when
tribes encounter markets.
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Rachel Kranton
James B. Duke Distinguished Professor of Economics
Rachel Kranton studies how institutions and the social setting affect economic outcomes.
She develops theories of networks and has introduced identity into economic thinking.
Her research contributes to many fields including microeconomics, economic development,
and industrial organization.
In Identity Economics, Rachel Kranton and collaborator George Akerlof, introduce a
general framework to study social norms and identity in economics.
In the economics of networks, Rachel Kranton develop

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