People are reciprocal if they reward kind actions and punish unkind ones. In this paper we a formal theory of reciprocity. It takes into account that people evaluate the kindness of an act only by its consequences but also by its underlying intention. The theory is in line with the re stylized facts of a wide range of experimental games, such as the ultimatum game, the gift-ex game, a reduced best-shot game, the dictator game, the prisoner’s dilemma, and public good Furthermore, it predicts that identical consequences trigger different reciprocal responses in d environments. Finally, the theory explains why outcomes tend to be fair in bilateral intera whereas extremely unfair distributions may arise in competitive markets.  2005 Elsevier Inc. All rights reserved. JEL classification:C7; C91; C92; D64; H41