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Reputation and Reciprocity: Consequences for the Labour Relation

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  • Simon Gächter
  • Armin Falk

Abstract

Recent evidence highlights the importance of social norms in many economic relations. However, many of these relationships are long term and provide repeated game incentives for performance. We experimentally investigate interaction effects of reciprocity and repeated game incentives in two treatments (one‐shot and repeated) of a gift‐exchange game. In both treatments we observe reciprocity, which is strengthened in the repeated game. A detailed analysis shows that, in the repeated game, some subjects imitate reciprocity. Thus, reciprocity and repeated game incentives reinforce each other. Observed behaviour is robust against experience. We conclude that long‐term interaction is a “reciprocity‐compatible” contract enforcement device. JEL classification: J30; C91

Suggested Citation

  • Simon Gächter & Armin Falk, 2002. "Reputation and Reciprocity: Consequences for the Labour Relation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 1-26, March.
    • Handle: RePEc:bla:scandj:v:104:y:2002:i:1:p:1-26
    DOI: 10.1111/1467-9442.00269
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    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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