A Model of Reciprocal Fairness: Application to the Labour Contract
AbstractWe investigate to what extent reciprocity, exhibited by employers and employees, lead to stable gift exchange practices in the labour contract, giving rise to non-compensating wage differentials among industries and firms. We use the concept of Sequential Reciprocity Equilibrium (Dufwenberg and Kirchsteiger 1998, 2004) to incorporate players’ preferences for reciprocity in their utility function. We show that successful gift exchange practices may arise if both players actually care for reciprocity. We test the predictions of the model using a matched employer-employee French dataset. Our results show that French employers and employees’ decisions are influenced by reciprocity concerns.
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Bibliographic InfoPaper provided by Macquarie University, Department of Economics in its series Research Papers with number 0609.
Length: 44 pages.
Date of creation: Nov 2006
Date of revision:
reciprocity; fairness; sequential game; cheap-talk; efficiency wages;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-03 (All new papers)
- NEP-BEC-2007-02-03 (Business Economics)
- NEP-CBE-2007-02-03 (Cognitive & Behavioural Economics)
- NEP-EXP-2007-02-03 (Experimental Economics)
- NEP-GTH-2007-02-03 (Game Theory)
- NEP-LAB-2007-02-03 (Labour Economics)
- NEP-SOC-2007-02-03 (Social Norms & Social Capital)
- NEP-UPT-2007-02-03 (Utility Models & Prospect Theory)
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