Group consumption, free-riding, and informal reciprocity agreements

We examine conditions under which group consumption is likely to involve informal reciprocity agreements rather than a price system. Our model shows that reciprocity agreements are used when transactions costs are high, the good is inexpensive, demand is inelastic, the group continues to interact over time, the consumers are patient, the time between interactions is short, and the group is small and homogencous. Further, the results suggest that reciprocity agreements are likely to involve goods that are consumed along with other group benefits, such as companionship. We use the model to analyze overlapping social networks and investments in social capital. (C) 2002 Elsevier Science B.V. All rights reserved.