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A Model of Reciprocal Fairness: Application to the Labour Contract

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Author Info
Stéphane Mahuteau () (Department of Economics, Macquarie University)

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Abstract

We 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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File URL: http://www.econ.mq.edu.au/research/2006/9_2006_Mahuteau.pdf
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File Function: First Version, 2006
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Publisher Info
Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0609.

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Length: 44 pages.
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:mac:wpaper:0609

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Postal: Sydney NSW 2109
Web page: http://www.econ.mq.edu.au/
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Related research
Keywords: reciprocity; fairness; sequential game; cheap-talk; efficiency wages;

Other versions of this item:

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

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