Fairness, or just gambling on it? An experimental analysis of the gift exchange game
Fehr, Kirchsteiger and Riedl  experimentally test a labor market in which worker effort levels are chosen after wages are set. They observe high wages and effort levels in the repeated game, contrary to the equilibrium prediction. In a similar experimental test of lemons markets, Lynch Miller, Plott and Porter  find support for the equilibrium prediction. The current paper finds more evidence of repeated game efforts than in previous studies. In a model of incomplete information regarding the reciprocal nature of other players, the FKR design is shown to be conducive to reputation effects while the LMPP design is not.
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