Chapter 22 Reciprocity, altruism, and cooperative production

Economists believe that a problem of team production results from the desirability of production in (sometimes large) groups, the difficulty of rewarding individual group members based on their (difficult or impossible to measure) individual contributions, and the presumed interest of each individual in avoiding effort and earning more, without regard to the outcomes of others. Although a possible response is to expend resources on monitoring each worker and paying accordingly, there are indications that this may be a less cost-effective approach than is drawing upon workers' propensities to reciprocate the trust and liberality of an employer by providing more effort, and to engage in mutual monitoring, social sanctioning of free riders, and emulation of others' efforts, when faced with group-based incentives. The large literature on incentives in producer cooperatives that sprang up during the 1960s through the 1980s predates economists' recent work on reciprocity, but it did concern itself with the interdependence of choices and it included remarks about mutual monitoring. This chapter considers the roles that altruism and reciprocity might play in cooperatives, and it discusses the recent, largely experimental literature on reciprocity and other social preferences, considering its relevance to cooperatives and to incentives in teams more generally.