Reciprocal Exchange: A Self-Sustaining System

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1996-09-01

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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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Kranton

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 develops formal models of strategic interaction in different economic settings. Her work draws on empirical findings and integrates new mathematical tools to uncover how network structures influence economic outcomes.

Rachel Kranton has a long-standing interest in development economics and institutions. She focuses on the costs and benefits of networks and informal exchange, which is economic activity mediated by social relationships rather than markets.


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