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Can Wages Signal Kindness?

  • Emrah Arbak

    (GATE - Groupe d'analyse et de théorie économique - CNRS - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines)

  • Laurence Kranich

    (Department of Economics - State University of New York at Albany)

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.

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Paper provided by HAL in its series Post-Print with number halshs-00180032.

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Date of creation: Nov 2005
Date of revision:
Publication status: Published in Working Paper du GATE 2005-11. 2005
Handle: RePEc:hal:journl:halshs-00180032
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  2. Gary Charness & Ernan Haruvy, 1999. "Altruism, equity and reciprocity in a gift-exchange experiment: An encompassing approach," Economics Working Papers 368, Department of Economics and Business, Universitat Pompeu Fabra.
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  6. Rajiv Sethi & E.Somanathan, 2002. "Understanding reciprocity," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 02-05, Indian Statistical Institute, New Delhi, India.
  7. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
  8. B. Douglas Bernheim & Sergei Severinov, 2000. "Bequests as Signals: An Explanation for the Equal Division Puzzle," NBER Working Papers 7791, National Bureau of Economic Research, Inc.
  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.
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  11. repec:oup:qjecon:v:102:y:1987:i:2:p:179-221 is not listed on IDEAS
  12. repec:oup:qjecon:v:114:y:1999:i:3:p:817-868 is not listed on IDEAS
  13. repec:oup:qjecon:v:107:y:1992:i:3:p:865-88 is not listed on IDEAS
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