We analyze the effects of reciprocity on the performance of a two-player team working in a venture. The players initially negotiate a fair, ‘reference-point,' contract, which determines their cash-flow rights and the direction of the venture (in terms of a project-choice). They then exert...

Behavioral economists are increasingly debating the desirability of overconfidence for individual and social welfare. For example, in Gervais and Goldstein's (2003) model of teamwork, a two-player team consisting of one overconfident and one rational agent outperforms a team consisting of two...