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Do Market Conditions Affect Gift Exchange? Evidence from Experimental Markets

  • Brandts, Jordi
  • Charness, Gary

We study whether behavior in experimental gift-exchange markets with repeated interaction is affected by market conditions. One issue we consider is the impact of competitive imbalance, by varying whether there is an excess supply of firms or an excess supply of workers in the market. Workers might react differently to high wage offers in the two cases, as it may seem that firms are ‘forced to be generous’ by competitive pressures when there are excess firms. Our second issue concerns the effect of requiring a minimum wage, another sense in which a firm may seem ‘forced to be generous’. We impose a minimum wage in the market with an excess supply of workers, and study the overall effect on wages and productivity. While our data show strong deviations from the standard game-theoretic prediction, the patterns of behavior are not fully consistent with either kindness-based models of positive reciprocity or models of distributional utility. The state of competition does not appear to have strong effects in our data; however, there is some evidence of lower productivity when a minimum wage is imposed. Finally, we also present data from single-period sessions that show substantial gift exchange even without repeated interactions.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt6gz8v3v1.

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Date of creation: 01 Mar 2003
Date of revision:
Handle: RePEc:cdl:ucsbec:qt6gz8v3v1
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  1. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
  2. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1998. "Gift exchange and reciprocity in competitive experimental markets," ULB Institutional Repository 2013/5909, ULB -- Universite Libre de Bruxelles.
  3. Sen, A., 1996. "Maximisation and the Act of Choice," Papers 270, Banca Italia - Servizio di Studi.
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  5. Charness, Gary, 2000. "Responsibility and effort in an experimental labor market," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 375-384, July.
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  8. Clark, Kenneth & Sefton, Martin, 2001. "The Sequential Prisoner's Dilemma: Evidence on Reciprocation," Economic Journal, Royal Economic Society, vol. 111(468), pages 51-68, January.
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  11. R. Lynn Hannan & John H. Kagel & Donald V. Moser, 2002. "Partial Gift Exchange in an Experimental Labor Market: Impact of Subject Population Differences, Productivity Differences, and Effort Requests on Behavior," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 923-951, October.
  12. Jordi Brandts & Gary Charness, 2003. "Truth or Consequences: An Experiment," Management Science, INFORMS, vol. 49(1), pages 116-130, January.
  13. Ernst Fehr & Armin Falk, 1999. "Wage Rigidity in a Competitive Incomplete Contract Market," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 106-134, February.
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  15. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  16. Charness, Gary & Frechette, Guillaume R & Kagel, John H, 2002. "How Robust is Laboratory Gift Exchange?," University of California at Santa Barbara, Economics Working Paper Series qt8qq4k3ph, Department of Economics, UC Santa Barbara.
  17. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  18. Offerman, Theo, 2002. "Hurting hurts more than helping helps," European Economic Review, Elsevier, vol. 46(8), pages 1423-1437, September.
  19. Timothy N. Cason & Vai-Lam Mui, 1998. "Social Influence in the Sequential Dictator Game," Monash Economics Working Papers archive-37, Monash University, Department of Economics.
  20. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  21. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 1998. "A theoretical analysis of altruism and decision error in public goods games," Journal of Public Economics, Elsevier, vol. 70(2), pages 297-323, November.
  22. Fehr, Ernst, et al, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 324-51, April.
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