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Do Market Conditions Affect Gift Exchange? Evidence from Experimental Markets

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  • Brandts, Jordi
  • Charness, Gary

Abstract

We study whether behavior in experimental gift-exchange markets with repeated interaction is affected by market conditions. One issue we consider is the impact of competitive imbalance, by varying whether there is an excess supply of firms or an excess supply of workers in the market. Workers might react differently to high wage offers in the two cases, as it may seem that firms are ‘forced to be generous’ by competitive pressures when there are excess firms. Our second issue concerns the effect of requiring a minimum wage, another sense in which a firm may seem ‘forced to be generous’. We impose a minimum wage in the market with an excess supply of workers, and study the overall effect on wages and productivity. While our data show strong deviations from the standard game-theoretic prediction, the patterns of behavior are not fully consistent with either kindness-based models of positive reciprocity or models of distributional utility. The state of competition does not appear to have strong effects in our data; however, there is some evidence of lower productivity when a minimum wage is imposed. Finally, we also present data from single-period sessions that show substantial gift exchange even without repeated interactions.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt6gz8v3v1.

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Date of creation: 01 Mar 2003
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Handle: RePEc:cdl:ucsbec:qt6gz8v3v1

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  15. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography, EconWPA 0305001, EconWPA.
  16. Charness, Gary, 2000. "Responsibility and effort in an experimental labor market," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 42(3), pages 375-384, July.
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  19. R. Lynn Hannan & John H. Kagel & Donald V. Moser, 2002. "Partial Gift Exchange in an Experimental Labor Market: Impact of Subject Population Differences, Productivity Differences, and Effort Requests on Behavior," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 20(4), pages 923-951, October.
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