Deferred Compensation and Gift Exchange: An Experimental Investigation into Multi-Period Labor Markets
This paper examines the relationship between firms’ wage offers and workers’ supply of effort using a three-period experiment. In equilibrium, firms will offer deferred compensation: first period productivity is positive and wages are zero, while third period productivity is zero and wages are positive. The experiment produces strong evidence that deferred compensation increases worker effort; in about 70 percent of cases subjects supplied the optimal effort given the wage offer, and there was a strong effort response to future-period wages. We also find some evidence of gift exchange; worker players increased the effort levels in response to above equilibrium wage offers by a human, but not in response to similar offers by a computer. Finally, we find that firm players who are initially hesitant to defer compensation learn over time that it is beneficial to do so.
|Date of creation:||Jun 2004|
|Date of revision:|
|Publication status:||published in: American Economic Review, 2011, 101 (2), 819-843|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ernst Fehr & Alexander Klein & Klaus Schmidt, 2001.
"Fairness, Incentives and Contractual Incompleteness,"
CESifo Working Paper Series
445, CESifo Group Munich.
- Ernst Fehr & Alexander Klein & Klaus M. Schmidt, . "Fairness, Incentives and Contractual Incompleteness," IEW - Working Papers 072, Institute for Empirical Research in Economics - University of Zurich.
- Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2001. "Fairness, Incentives and Contractual Incompleteness," Discussion Papers in Economics 18, University of Munich, Department of Economics.
- Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2001. "Fairness, Incentives and Contractual Incompleteness," CEPR Discussion Papers 2790, C.E.P.R. Discussion Papers.
- Salop, Joanne & Salop, Steven, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 619-27, November.
- Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997.
"Reciprocity as a Contract Enforcement Device: Experimental Evidence,"
Econometric Society, vol. 65(4), pages 833-860, July.
- 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.
- 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.
- Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography 0305001, EconWPA.
- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
- Jagadeesh Gokhale & Erica L. Groshen & David Neumark, 1993.
"Do Hostile Takeovers Reduce Extramarginal Wage Payments?,"
NBER Working Papers
4346, National Bureau of Economic Research, Inc.
- Gokhale, Jagadeesh & Groshen, Erica L & Neumark, David, 1995. "Do Hostile Takeovers Reduce Extramarginal Wage Payments?," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 470-85, August.
- Jagadeesh Gokhale & Erica L. Groshen & David Neumark, 1992. "Do hostile takeovers reduce extramarginal wage payments?," Working Paper 9215, Federal Reserve Bank of Cleveland.
- Joanne Salop & Steve Salop, 1976. "Self-selection and turnover in the labor market," Special Studies Papers 80, Board of Governors of the Federal Reserve System (U.S.).
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Edward P. Lazear, 2000.
"Performance Pay and Productivity,"
American Economic Review,
American Economic Association, vol. 90(5), pages 1346-1361, December.
- Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers 052, Institute for Empirical Research in Economics - University of Zurich.
- Fehr, Ernst & Kirchsteiger, Georg & Riedl, Arno, 1996.
"Involuntary Unemployment and Non-compensating Wage Differentials in an Experimental Labour Market,"
Royal Economic Society, vol. 106(434), pages 106-21, January.
- Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1996. "Involuntary unemployment and non-compensating wage differentials in an experimental labour market," ULB Institutional Repository 2013/5917, ULB -- Universite Libre de Bruxelles.
- Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
- Hutchens, Robert M, 1987. "A Test of Lazear's Theory of Delayed Payment Contracts," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S153-70, October.
- Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp1193. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.