April, 2003

Reciprocity and Social Order: What Do Experiments Tell Us About Economic Growth?

  • Kevin McCabe

    Mercatus Center Scholar
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Our innate propensity is to use personal exchange to trade with others. Personal exchange promotes cooperation by using highly evolved mental mechanisms in order to produce gains from trade. However, personal exchange is by nature designed to build exclusionary relationships and thus limited in its scope. To increase the scope of personal exchange humans have made it increasingly impersonal. This is done first through the creation and acceptance of decision-making roles that have associated with them certain rights and responsibilities, and second through the use of institutions that extend roles by designing rules that formalize these of informal decision-making rights and their interrelationship. A key feature of impersonal exchange is both inclusionary, and competitive, access to decision-making roles. This paper makes three observations for policy-makers, interested in promoting economic growth, based on the experimental work done at the Interdisciplinary Center for Economic Science. First, safeguards must be put into place to protect impersonal exchange from our innate desire for personal exchange. Second, policy must take into account the heterogeneity of individual cognitive strategies that are observed in economics laboratories. Third, policy must be test-bedded in economic experiments where the status quo is modeled as an ecologically rational response to the economic environment and the proposed policy change occurs in an environment where individuals have access to a full repertoire of personal exchange behaviors.