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Can Wages Signal Kindness?

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  • Emrah Arbak

    (GATE CNRS)

  • Laurence Kranich

Abstract

We model the interaction between an employer and a worker with interdependent preferences in a simple one-shot production process. In particular, we assume that the worker becomes kinder if she senses that her employer is an altruist. We assume that intentions are private information. Thus, the wage proposal signals the intentions of the employer to the worker. We show that if the workers have ”reasonable” beliefs, then the unique prediction of the game is a separating equilibrium outcome in which wages are fully informative about the intentions of the employer. However, if there are several employers simultaneously bidding to hire a single worker, then there may exist another equilibrium in which wages are completely uninformative.

Suggested Citation

  • Emrah Arbak & Laurence Kranich, 2005. "Can Wages Signal Kindness?," Working Papers 0511, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
  • Handle: RePEc:gat:wpaper:0511
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    References listed on IDEAS

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    1. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
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    6. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    7. B. Douglas Bernheim & Sergei Severinov, 2003. "Bequests as Signals: An Explanation for the Equal Division Puzzle," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 733-764, August.
    8. Charness, Gary & Haruvy, Ernan, 2002. "Altruism, equity, and reciprocity in a gift-exchange experiment: an encompassing approach," Games and Economic Behavior, Elsevier, vol. 40(2), pages 203-231, August.
    9. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
    10. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
    11. Vesna Prasnikar & Alvin E. Roth, 1992. "Considerations of Fairness and Strategy: Experimental Data from Sequential Games," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 865-888.
    12. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
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    Cited by:

    1. Non, Arjan, 2012. "Gift-exchange, incentives, and heterogeneous workers," Games and Economic Behavior, Elsevier, vol. 75(1), pages 319-336.
    2. Dur, Robert & Roelfsema, Hein, 2010. "Social exchange and common agency in organizations," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 55-63, January.
    3. Saima Naeem & Asad Zaman, 2013. "For Love or Money? Motivating Workers," PIDE-Working Papers 2013:90, Pakistan Institute of Development Economics.
    4. Orhun, A. Yeşim, 2018. "Perceived motives and reciprocity," Games and Economic Behavior, Elsevier, vol. 109(C), pages 436-451.

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    More about this item

    Keywords

    Altruism; Reciprocity; Asymmetric information; Labor relations; Behavioral game theory;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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