Soft transactions

- We propose the idea that a “soft debt” is accrued whenever a player helps the other.
- This social convention can facilitate long-term reciprocal relationships.
- Favor decisions depend on the entire history only through the soft debt balance.
- Equilibria exist in which players reciprocate whenever the balance is below a limit.
- The model provides a new structure for considering social (non-market) exchange.

This paper considers “soft debt” as a social convention that facilitates long-term reciprocal relationships. A player is said to follow a soft debt strategy if his decisions depend on the entire history with his counterpart only through their accrued soft debt balance. Under discrete benefits, there exist equilibria in which the players keep reciprocating as long as the debt balance does not exceed a certain limit.