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Generalized Exchange

All forms of social exchange occur within structures of mutual dependence, that is, structures in which actors are mutually, or reciprocally dependent on one another for valued outcomes.

(The terms: direct and restricted exchange, and indirect and generalized exchange are used interchangeably)

History

Forms of exchange and structure of reciprocity

The mutual or reciprocal dependence can be either direct or indirect. In forms of exchange with direct reciprocity (direct or restricted exchange), two actors exchange resources with each other – A provides value to B, and B to A – and B's reciprocation of A's giving is direct.

When we have the forms of exchange with direct reciprocity – (indirect or generalized exchange), the recipient of benefit does not return benefit directly to the giver, but to another actor in the social circle. The giver eventually receives some benefit in return, but from a different actor.

Summing up, A gives to B, but reciprocation does not occur directly back from B to A, but rather, from C's giving to A, where C is a third party.

Variations in direct reciprocity

Both, direct and indirect structures of reciprocity produce exchanges which have different consequences for trust and solidarity [1]. Direct exchanges are characterized by high emotional tension – quid pro quo – self-interested actors who often engage in conflicts over fairness of exchanges and low levels of trust.

In indirect exchanges, we observe reduced emotional tension between the partners, a credit mentality, collective orientation and high levels of solidarity and trust.

There are differences among forms of direct exchange, which Ekeh [1] is believed to have overlooked. According to Molm, Collett, and Shaefer [2], not all forms of direct exchange are characterized by a self-interested emphasis on immediate reciprocity. There exists a clear distinction between negotiated and reciprocal forms of direct exchange [3] [4].

Direct negotiated exchange

In such exchange, actors together arrange and negotiate the terms of an agreement that benefits both parties, either equally or unequally. Both sides of the exchange are agreed upon at the same time, and the benefits for both exchange partners are easily identified as paired contributions that form a discrete transaction. There agreements are strictly binding and produce the benefits agreed upon [5].

Direct reciprocal exchange

In such exchange, actors engage in actions that benefit one another. Such behaviors can be advice-giving, assistance, help, and are not subject to negotiation. Moreover, there is no knowledge whether or when or to what extent the other will reciprocate.

In theory, all three forms of exchange – generalized, direct negotiated, and direct reciprocal – differ from one another on a set of dimensions that potentially affect the development of social solidarity. These dimensions comprise the structure of reciprocity in social exchange [2].  Theory argues that while all forms of exchange are characterized by some type of reciprocity, the structure of reciprocity varies on two key dimensions that affect the social solidarity or integrative bonds that develop between actors:

  1. Whether benefits are reciprocated directly or indirectly.
    • Corresponds to the basic distinction between direct (restricted) and indirect (generalized) forms of exchange discussed above. Direct vs indirect reciprocity also implies two related structural differences: whether exchange is dyadic (2-party) or collective (3+), and whether or not actors are depended on the actions of a single other actor or multiple actors for valued resources.
  2. Whether benefits can flow unilaterally or only bilaterally.
    • Unilateral – each actor’s outcomes are contingent solely on another’s individual actions, and actors can initiate exchanges that are not reciprocated (and vice versa). Timing of reciprocity can be delayed in both reciprocal and generalized exchange.
    • When exchanges are negotiated, we have joint action effects, meaning, flow of benefits are always bilateral and each transaction produces an agreement that provides benefits (equal or unequal) for both actors.

Network structures depicted above affects the power distribution among actors and the inequality of benefits. These structures show how actors and relations of direct exchanges are connected to one another.

Indirect reciprocity

In generalized exchange, one actor gives benefits to another, and receives from another, but not from the same actor. We have a context of a chain-generalized system of exchange where A, B, and C are the connected parties. They may also be a part of a larger, more diffused network, with no defined structure. According to Takahashi (2000) [6], this is called "pure generalized" exchange.

In indirect structures of reciprocity, each actor is depended not on a single other, as in direct forms of exchange, but on all actors who contribute to maintaining the collective system [7]. Generalized exchange according to this logic, is a common feature of business organizations, neighborhoods, and the vast and growing network of online communities [8] [9].

Contexts

Exchange processes have been studied in a variety of empirical contexts. Much of the beginning of generalized exchange work revolved around tribal settings. For example, Malinowski’s Trobriand Island research serves as a foundational work for the study of exchange. The classic example of the kula ring showed a system of exchange formed cyclically, where a giver would receive after a product given had gone through a full circle of receivers. Similar tribal research includes the inhabitants of Groote Eylandt, and matrilineal cross-cousin marriages.

These early studies have provoked the study of reciprocity and exchange in modern settings as well. For example, with technology comes exchange through information sharing in large, anonymous online communities of software developers [10]. Even within academia, exchange has been studied through prosocial behaviors in a group of MBA students [11]. In addition to qualitative and ethnographic research, scholars have also studied generalized exchange through targeted lab experiments as well as programmed simulations. Generalized exchange has further studied through real life experiences, such as participation in public good conservation programs when one is recognized for doing so as opposed to when one’s name remains anonymous [12].

Incentives and motivations

Structure of reciprocity can affect exchange in a more fundamental way, through its implications on actors’ incentives. Generalized reciprocity is a way of "organizing" an ongoing process of "interlocked behaviors" where one person’s behavior depends on another’s, whose is also depended on another’s – a chain reaction so to say. In organizations for example, people help others for different reasons. There are incentives to motivate sharing knowledge and helping others in organizations in terms of formal participation quotas, making helping an enforceable requirement with guaranteed rewards. Such incentives usually, do not however specify who helps who – that is more discretionary. Individuals are free to choose who to help, and these choices can vary from helping only those that have helped an individual in the past (direct reciprocity), or to help those that have helped others and not helping those that have not helped. This last situation is called – rewarding a reputation. Alternatively, individuals pay forward for help that they will receive, or just choose randomly.

Paying it Forward – here, the situation requires the participation of at least three individuals. Deckop (2003) [13] finds that an employee, receiving help from a coworker is more likely to help another individual in an organization. A study found that more finances were willingly given and reciprocated when exchange was characterized as direct (A to B, B to A) than indirect (A gives to B and B to C). Evidence exists in simulation studies as well where Nowak and Roch (2007) [14] posit that cooperation is especially promoted with paying it forward in direct or spatial reciprocity. The incentive of paying it forward relates to obligation to reciprocate another’s action, not by directly paying back the same person, "but by benefiting another actor implicated in a social situation with his benefactor and himself" [1]. Obligation is not the only driving mechanism however. Barlett and DeSteno (2006) [15] find that grateful recipients of help were more likely to respond to a third-party stranger’s request for help. Thus, gratefulness is another driver of paying it forward behavior. The study of Baker and Bulkley (2014) [16], along these lines, show that individuals are incentivized to pay forward by using a simple rule "What has the group done for me?". Consequently, more help they had received, the higher was the likelihood that they would respond to a new request. Gratitude in this sense also stimulated a faster reaction to others’ request for help.

Rewarding Reputation – reputation is regarded as another incentive in generalized reciprocity. Evolutionary theorists Nowak and Sigmund (1998) [17] regard reputation a person’s image. This in organizations is named as "professional image", namely, others’ perceptions of individuals within organizations – but with a focus on helpfulness. The same authors also show in their simulation study that strategy of rewarding reputation produces an evolutionary stable system of generalized reciprocity. Same idea is echoed by economic experiments where the rewarding of reputation is shown to yield generalized reciprocity [18]. Individuals with reputations for helpfulness are more likely to get helped in contrast to those individuals without such reputation. Real-life examples show that in situations where reputations for helpfulness are rewarded, individuals are prone to engaging in helping others so that they will in return be rewarded and helped in the future. Incentive here is to be helped in the future – which is why individuals engage in building reputation. Experimental research on rewarding reputation also shows that reputations in organizations too are built with such incentives, and through consistent demonstration of "distinctive and salient behaviors on repeated occasions, or over time" [19]. Consequences for such actions are the following: good reputation results in more autonomy, power, and career success [11][20]. Interestingly, rewarding reputation is more time contingent. It is taxing for individuals to keep track of what everyone else does and monitor whose rate of helping is higher. This makes rewarding reputation tied to the recency of helpfulness. Individuals are found to make decisions based on recent reputation of others rather than their long-term reputation. The reward system of reciprocity is based on "what have you don’t for us lately?!" and the less recent one’s deeds are, the less likely it is for these individuals to receive help in return [11].

To encourage reciprocity and incentivize individuals to engage in such prosocial behavior, organizations are shown to enforce norms of asking for help, giving help, and reciprocating help by organizing meetings and informal practices. Supervisors are also encouraged to use symbolic or financial rewards to incentivize helping. Google for example, uses a peer-to-peer bonus system that empowers employees to express gratitude and reward helpful behavior with token payments. Additionally, they use paying it forward incentive – meaning, those individuals that receive such bonuses, are given additional funds that may only be paid forward to recognize a third employee. To encourage knowledge exchange, large organizations employ knowledge-sharing communities in which they post and respond to requests for help around work-related problems.

When past actions are observable, natural selection favors those that have been engaging in cooperation. Namely, individuals cooperate willingly with those that have been observed to be cooperative and withhold cooperation from defectors. This makes free-riding unsuccessful and promotes cooperation. Lab experiments also showed that people are substantially more cooperative when their decisions are observable and when others can reciprocate by cooperating as well. Individuals are incentivized to build good reputation and thus cooperate with an expectation of receiving cooperative treatment in return. Building on these lab evidence, a field experiment of Yoeli et al., (2013) [12] tested observability in a public goods game and found that indirect reciprocity promotes cooperation. When individuals found that their actions were observable and that their names were public once they donated blood, the frequency of blood donations increased. Reputational concerns were found to be the driving force behind the effect of observability. Moreover, this effect was substantially stronger in settings where individuals were more likely to have future interactions with those who observed them and when participation was framed as a public good.

Social Mechanism

Exchange, generalized or otherwise, must be understood as an inherently socially-connected construct. Social dynamics set the stage for an exchange to occur, between whom the exchange occurs, and what will happen after the exchange occurs. For example, exchange has been shown to have effects on an individual's reputation and standing.

Solidarity is also a hypothesized social outcome of exchange processes. Through continued exchange between many different members of a group, and the continuous attempt to sanction and eliminate self-serving behavior, a group can become tightly-connected to the point that an individual identifies with the group. This identification could then lead an individual to protect or aid the group even at one's own cost or without any promise of benefit in return.

Some have conceived of indirect reciprocity as being a result of direct reciprocity that is observed, as direct exchanges that are not observed by others cannot possibly increase the standing of an individual to an entire group except through piecemeal methods such as gossip. Through observation, it becomes clearer to a group who gives or reciprocates and who does not; in this way good actions can be rewarded or encouraged, and bad actions can be sanctioned through refusal to give.

Exchange is also a human process in the sense that it is not always carried out or perceived correctly. Individuals in groups can hold faulty perceptions of other actors which will lead them to take sanctioning action; this can also in turn lead to a lowering of the standing of that individual, if the group perceives the receiving actor undeserving of sanction. In a similar way, sometimes individuals may intend on taking a certain action and failing to do so either through human error (e.g. forgetfulness) or due to extenuating circumstances. For these reasons, there will always be a certain degree of error in the way that exchange systems work.

The idea of why the society needs exchanges could date back both anthropologically and sociologically.

Sociologists use the term of solidarity to explain exchanges. Emile Durkheim differentiates solidarity into mechanical and organic solidarity according to the type of the society. Mechanical solidarity is associated with pre-modern society, where individuals are homogeneous and the cohesion arises mainly from shared values, lifestyles and work. Kinship connects individuals inside the society hence the exchange exists for survival purpose because of low level of role specialization. This makes the solidarity mechanical as the exchange appears only when someone needs others, which may fall into exchange theory, with reciprocity in the form of status or reputation, as well as generalized exchange theory, where, out of expectation from the homogeneous group, reciprocity starts from the recipient helping a third and ends as the cycle is closed. The solidarity differs from the more organic type of exchange in modern society. Modern society steps out of small and kinship-based town and integrates heterogeneous individuals that vary in their education, social class, religions, nations and races. Individuals stay distant from others psychologically and sociologically but meanwhile depend upon each other for their own well-being. The generalized exchange is hence more complicated as a result of longer chain in the cycle and perhaps temporal expansion.

Anthropologists, quite different from sociologists, study the solidarity from the structural functionalism. While sociologists view individuals engaged in exchange due to the social factors, anthropologists, such as Levi-Strauss, believe the exchange is more of the solidarity in maintaining a well-functioned society than that for socially constrained individuals’ own needs. The society is believed to be an organism and all parts function together for the stability of the organism. Individuals work for the society and, reciprocally, they receive, say, philanthropic, materialistic, and social return from the society. It is similar to the modern society described by sociologists above, but the point here is that the solidarity is the cause of individual activities, which means individuals’ activities are dominated by the idea of solidarity, while sociologists’ modern society reaches solidarity as a result of individual’s self-oriented activities, where the solidarity is observed after selfish individuals focus on their own interests. However, Malinowski studies the kula ring exchange on some island and concludes that individuals participate in the ritual or ceremony out of their own needs, where they feel satisfied as a part of the society. This could also be interpreted religiously as individuals hold the society above their social roles hence they actively become involved in the ceremony and reciprocally benefit psychologically and socially from being a part of the holiness, which, in a way, agrees with the idea of solidarity as the cause.

Social Dilemmas in Generalized Exchange

The unilateral character of generalized exchange that lacks one-to-one correspondence between what two parties directly give to and take from one another, distinguishes it from direct or restricted exchange [7] [6]. Ekeh (1974) [1], a pioneer scholar in exchange theory, argues that generalized exchange is more powerful than restricted forms of exchange in generating morality, promoting mutual trust and solidarity among the participants. This view, however, found to be too optimistic or problematic by later scholars, given that it ignores the social dilemmas created by the exchange structure. Because generalized exchange paves the way for exploitation by rational self-interested members, thus a free rider problem. This social dilemma needs to be resolved for generalized exchange systems to emerge and survive.

Solutions to free rider problem

Despite the risk of free riding, early exchange theorists proposed several explanations to why such exchange systems exist. Among others, altruistic motivation of members, existence of collective norms and incentives that regulates the behaviour of returning resources to any member, are most discussed ideas [6]. However, these approaches do not guarantee the maintenance of exchange system, since compliance is facilitated by monitoring [12] which does not exist in most cases. Subsequent social theorists proposed more feasible solutions that prevent free rider problem in generalized exchange systems. These solutions are described below by using the terminology adapted by Takahashi (2000) [6].

Downward Tit-for-That in network-generalized exchange

Tit-for-Tat strategy was originally introduced in game theory in order to provide solution to Prisoner’s dilemma by promoting mutual cooperation between two actors. This strategy has been adapted to bilateral and network relations, and in both cases the strategy works only in restricted – rather than generalized – exchange, because it involves bilateral resource giving in either situation. In an effort to propose a strategy to solve the social dilemma aspect of generalized exchange, Yamagishi and Cook (1993) [7] analysed the effect of network structures on group members’ decisions. Relying on Ekeh’s (1974) [1] approach, they distinguish two forms of generalized exchange as "group-generalized" and "network-generalized". In the first type, group members pool their resources and then receive benefits that are generated by pooling. In the second, each member provides resources to another member in the network who does not return benefits directly to the provider, but the provider receives benefits from some other member in the network. They basically claim that group-generalized exchange involves free rider problem as it is rational for any member to receive resources from pool without contributing. On the other hand, network-generalized exchange limits the occurrence of this problem as it is easier to detect free riding member and punish him/her by withholding resources until s/he starts to give. The laboratory experiments supported these predictions and they showed that network-generalized exchange promotes a higher level of participation (or cooperation) that group-generalized exchange structure. They also show that trust is an important factor for the survival of both systems and has a stronger effect on cooperation in the network-generalized structure than in the group-generalized structure.

In another study, biologists Boyd and Richerson (1989) [21] presented a model of evolution of indirect reciprocity and supported the idea that downward tit-for-tat strategy helps sustaining network-generalized exchange structures. They also claim that as the group size increases, positive effect of this strategy on the possibility of cooperation reduces. In summary, these studies show that for a generalized exchange system to emerge and survive, a fixed form of network that consists of unidirectional paths is required. When this is available, adapting downward tit-for-tat strategy is profitable for all members and free riding is not possible. However, according to Takahashi (2000) [6], the requirement of a fixed network structure is a major limitation since many of real world generalized exchange systems do not represent a simple closed chain of resource giving.

Pure-generalized exchange

Takahashi and Yamagishi proposed pure-generalized exchange as a situation where there is no fixed structure. It is regarded as more general, flexible and less restricted compared to previous model. In essence, pure-generalized exchange is network-generalized exchange with a choice of recipients, where each actor gives resources to recipient(s) that s/he chooses unilaterally. However, this model also comes with a limitation; the necessity of a criteria that represent a collective sense of fairness among the members. By easing the limitations caused by the models described above, Takahashi (2000) proposed a more general solution to free rider problem. This new model is summarized below.

Fairness-based selective giving in pure-generalized exchange

The new model proposed by Takahashi (2000) [6], solved the free rider problem in generalized exchange by imposing particular social structures as little as possible. He adapted pure-generalized exchange situation with a novel strategy; fairness-based selective giving. In this strategy, actors select recipients whose behaviours satisfy their own criteria of fairness which would make pure-generalized exchange possible. He showed that this argument can hold in two evolutionary experiments, in particular, pure-generalized exchange can emerge even in a society in which members have different standards of fairness. Thus, altruism and a collective sense of fairness are no longer required in such a setting. Why self-interested actors give resources unilaterally has been interpreted with the possibility that this action increases profits by participation in exchange.

References

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