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| Author: | Neilson, W. S. |
| Title: | The economics of favors |
| Journal: | Journal of Economic Behavior and Organization
1999 : AUG, VOL. 39:4, p. 387-397 |
| Index terms: | Econometrics Models |
| Language: | eng |
| Abstract: | This paper examines the favours that people perform for each other using a stochastic version of the infinitely-Repeated Prisoner's Dilemma (or RPD). It is shown that the socially efficient outcome may not be consistent with an equilibrium because some favours are too expensive to perform. On the other hand, it is possible for some socially inefficient favours to be performed. Even so, favour-exchange relationships ought to be strictly Pareto-improving. The model is also able to address situations in which there are market alternatives to the services being exchanged, and when favours are exchanged among members of large groups or hierarchies. |
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