The Role of Reciprocity in the Creation of Reputation

The role of reciprocity in the creation of reputation

We seek to identify social mechanisms which explain the production of reputation in economic relationships between actors. Reputation is often assumed to be freely available in social systems. However, since people have to give away exclusive information the production of information is not for free per se. The higher the costs of producing reputation, the stronger is the necessity to overcome this obstacle by appropriate incentives. Since reputation has been shown to play a crucial role in economic and social systems, the identification of such mechanisms is crucial for our understanding how exchange between actors work. We argue that reciprocity can be a strong driver for information transfer in social systems. Based on the idea of an effective norm of reciprocity in social and economic systems we derive hypotheses on the role of reciprocity for the production of reputation in small networks. We distinguish between direct and general reciprocity and argue that both may foster the flow of information about exchange partners in economic systems. Moreover, we examine the interdependency between competition and reciprocity.The hypotheses are tested by employing an experimental design. A standard trust games is used where reputational information can be exchanged between individual agents within a population but does not become public. We assign a competition and a non-competitive treatment and compare the role of reciprocity in both setting.Multi-level panel models reveal that direct as well as general reciprocity is an important driver for the transfer of information about a seller among a group of buyers. Moreover, competition dampens the production of reputation considerably.