In a world of incomplete, unenforceable contracts, both reputation effects and fairness concerns have been suggested as mechanisms capable of avoiding or mitigating market failure. Existing experiments show that labor market failure can be avoided in the absence of individual reputations, apparently due to subjects' other-regarding preferences. This paper introduces a reputation equilibrium with stereotyping (modeled as a belief of type correlation) that predicts cooperation even when individual reputations effects are weak. New experiments show that cooperation emerges when such equilibria are likely to exist, but not when existence is unlikely.
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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number
2006-E6.
Length: Date of creation: Date of revision: Handle: RePEc:cmu:gsiawp:1140898278
Contact details of provider: Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890 Web page: http://www.tepper.cmu.edu/
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