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Gift Exchange and Workers' Fairness Concerns: When Equality Is Unfair

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Author Info
Abeler, Johannes () (University of Nottingham)
Altmann, Steffen () (IZA)
Kube, Sebastian () (Max Planck Institute for Research on Collective Goods)
Wibral, Matthias () (University of Bonn)

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Abstract

We study how different payment modes influence the effectiveness of gift exchange as a contract enforcement device. In particular, we analyze how horizontal fairness concerns affect performance and efficiency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference instead seems to be driven by the fact that the norm of equity is violated far more frequently in the equal wage treatment. After having suffered from violations of the equity principle, agents withdraw effort. These findings hold even after controlling for the role of intentions, as we show in a third treatment. Our results suggest that adherence to the norm of equity is a necessary prerequisite for successful establishment of gift-exchange relations.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4262.

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Date of creation: Jun 2009
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Publication status: forthcoming in: Journal of the European Economic Association
Handle: RePEc:iza:izadps:dp4262

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Related research
Keywords: reciprocity; gift exchange; equity; wage equality; wage setting; incomplete contracts;

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Find related papers by JEL classification:
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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