We have established that: People do not behave selfishly, and do not maximize utility -- this means that micro economic theory is all wrong.
Next, we are looking at how DO people behave? We find that this depends on many factors, including social norms.
RECIPROCITY is a powerful motivator of human beings: Do unto others as they do unto you. In previous lecture, we studied the effects of reciprocity on certain common games and economic situations. The possibility of PUNISHING people for deviating from social norms, cheating, doing less than their share, leads people to OBEY social norms. When they obey social norms, then outcomes in public good games are very different from those predicted by economic theory.
This lecture looks at the application of RECIPROCITY in other areas of economics. The first article is the FGK97 which studies how reciprocity can be used to ensure high effort levels from workers. This article was not covered in previous lecture, and is attached on the page for Lecture 10 ..
Model paper is also attached below.