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On The Relevance And Composition Of Gifts Within The Firm: Evidence From Field Experiments

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  • Charles Bellemare
  • Bruce Shearer

Abstract

We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers’ optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers’ outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.
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Suggested Citation

  • Charles Bellemare & Bruce Shearer, 2011. "On The Relevance And Composition Of Gifts Within The Firm: Evidence From Field Experiments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 855-882, August.
    • Handle: RePEc:ier:iecrev:v:52:y:2011:i:3:p:855-882
    DOI: j.1468-2354.2011.00652.x
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    Cited by:

    1. Bruce S. Shearer, 2022. "Piece‐rate cuts and ratchet effects," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(3), pages 1371-1403, August.
    2. Stefano DellaVigna & John A. List & Ulrike Malmendier, 2012. "Testing for Altruism and Social Pressure in Charitable Giving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 1-56.
    3. Englmaier, Florian & Roider, Andreas & Sunde, Uwe, 2014. "The Role of Communication of Performance Schemes," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 507, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Carpenter, Jeffrey, 2016. "The labor supply of fixed-wage workers: Estimates from a real effort experiment," European Economic Review, Elsevier, vol. 89(C), pages 85-95.
    5. David Huffman & Michael Bognanno, 2018. "High-Powered Performance Pay and Crowding Out of Nonmonetary Motives," Management Science, INFORMS, vol. 64(10), pages 4669-4680, October.
    6. Cardella, Eric & Depew, Briggs, 2018. "Output restriction and the ratchet effect: Evidence from a real-effort work task," Games and Economic Behavior, Elsevier, vol. 107(C), pages 182-202.
    7. Marco Faillo & Luigi Mittone & Costanza Piovanelli, 2018. "Cash posters in the lab," CEEL Working Papers 1801, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    8. Stefano DellaVigna & John A. List & Ulrike Malmendier & Gautam Rao, 2022. "Estimating Social Preferences and Gift Exchange at Work," American Economic Review, American Economic Association, vol. 112(3), pages 1038-1074, March.
    9. Florian Englmaier & Stephen Leider, 2020. "Managerial Payoff and Gift-Exchange in the Field," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(2), pages 259-280, March.
    10. Matthias Fahn & Anne Schade & Katharina Schüßler, 2017. "What Drives Reciprocal Behavior? The Optimal Provision of Incentives over the Course of Careers," CESifo Working Paper Series 6635, CESifo.
    11. Livio, Luca & De Chiara, Alessandro, 2019. "Friends or foes? Optimal incentives for reciprocal agents," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 245-278.
    12. Florian Englmaier & Andreas Roider & Uwe Sunde, 2017. "The Role of Communication of Performance Schemes: Evidence from a Field Experiment," Management Science, INFORMS, vol. 63(12), pages 4061-4080, December.
    13. Non, Arjan, 2012. "Gift-exchange, incentives, and heterogeneous workers," Games and Economic Behavior, Elsevier, vol. 75(1), pages 319-336.
    14. Cardella, Eric & Depew, Briggs, 2016. "Testing for the Ratchet Effect: Evidence from a Real-Effort Work Task," IZA Discussion Papers 9981, Institute of Labor Economics (IZA).
    15. Orhun, A. Yeşim, 2018. "Perceived motives and reciprocity," Games and Economic Behavior, Elsevier, vol. 109(C), pages 436-451.
    16. Malmendier, Ulrike M. & DellaVigna, Stefano & List, John & Rao, Gautam, 2020. "Estimating Social Preferences and Gift Exchange with a Piece-Rate Design," CEPR Discussion Papers 14931, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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