Identity economics provides a framework to analyze economic outcomes by establishing people's identities--not just pecuniary incentives--as primary motivations for choice. The heart of the framework is social difference and norms. This paper engages the emerging economic research into sources of divisions and norms: individuals, families, schools, governments, and social movements. The task at hand is to further to develop the micro-foundations of identity, in order to build a socially framed understandings of human motivation that will yield more robust accounts of behavior and institutions and yet better predictions of the implications of policy.

Reciprocal exchange, or gift exchange, remains a widespread means of obtaining goods and services. This paper examines the persistence of reciprocal exchange by formalizing the interaction between self-enforcing exchange agreements and monetary market exchange. When more people engage in reciprocal exchange, market search costs increase, reciprocity is easier to enforce and yields higher utility. Thus, personalized exchange can persist even when it is inefficient. Conversely, large markets can destroy reciprocity when reciprocal exchange is efficient. The results characterize the use of personal "connections" as a system of reciprocal exchange and explain the disappearance of reciprocity when tribes encounter markets.

This paper introduces a new model of exchange: networks, rather than markets, of buyers and sellers. It begins with the empirically motivated premise that a buyer and seller must have a relationship, a “link,” to exchange goods. Networks—buyers, sellers, and the pattern of links connecting them—are common exchange environments. This paper develops a methodology to study network structures and explains why agents may form networks. In a model that captures characteristics of a variety of industries, the paper shows that buyers and sellers, acting strategically in their own self-interests, can form the network structures that maximize overall welfare.

This paper considers how identity, a person's sense of self, affects economic outcomes. We incorporate the psychology and sociology of identity into an economic model of behavior. In the utility function we propose, identity is associated with different social categories and how people in these categories should behave. We then construct a simple game-theoretic model showing how identity can affect individual interactions. The paper adapts these models to gender discrimination in the workplace, the economics of poverty and social exclusion, and the household division of labor. In each case, the inclusion of identity substantively changes conclusions of previous economic analysis.

“I want to tell my foreman to f*** off, but I can’t.” So says “Mike,” a steel handler we meet in Stud Terkel’s book Working (1974, xxxv). Many workers’ stories we read in Working and in ethnographies suggest workers greatly resent supervision. As a result, they exert lower effort and may sabotage production. Mike puts dents in the steel. Ethnographies also reveal workers who are not strictly monitored develop work group output norms. This paper uses the con cept of identity to study trade-offs in supervi sory policy. 1 We follow the social psychology literature and examine intrinsic incentives that depend on how workers see themselves in rela tion to the firm. When a supervisor monitors workers, workers adopt an identity in opposition to the firm. The firm gains information and can fine-tune its incentive pay. But resentful workers require high compensation to work in the firm’s interest. With no monitoring, workers are less hostile to the firm. But they may forge a work group identity, with norms that restrict output. We show that a firm may find it profitable to have lax supervision. When workers take on a work group identity, the cost per unit of effort can be lower than when workers view them selves in opposition to the firm. We shall present the model, and then discuss some classic studies of workplaces that portray these trade-offs. Our identity framework synthesizes an emerg ing body of economic theory and empirics on incentives and monitoring (e.g., Bruno Frey 1993; Gary Charness 2000; Daniel S. Nagin et al. 2002; Michael T. Rauh and Giulio Seccia 1 This paper provides a simple formal model of tradeoffs described loosely in Akerlof and Kranton (2005). We also discuss further implications of supervision versus work group cohesion.