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A Model of Reciprocal Fairness: Application to the Labour Contract

Author

Listed:
  • Stéphane Mahuteau

    (Department of Economics, Macquarie University)

Abstract

We investigate to what extent reciprocity, exhibited by employers and employees, lead to stable gift exchange practices in the labour contract, giving rise to non-compensating wage differentials among industries and firms. We use the concept of Sequential Reciprocity Equilibrium (Dufwenberg and Kirchsteiger 1998, 2004) to incorporate players’ preferences for reciprocity in their utility function. We show that successful gift exchange practices may arise if both players actually care for reciprocity. We test the predictions of the model using a matched employer-employee French dataset. Our results show that French employers and employees’ decisions are influenced by reciprocity concerns.

Suggested Citation

  • Stéphane Mahuteau, 2006. "A Model of Reciprocal Fairness: Application to the Labour Contract," Research Papers 0609, Macquarie University, Department of Economics.
    • Handle: RePEc:mac:wpaper:0609
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    File URL: http://www.econ.mq.edu.au/research/2006/9_2006_Mahuteau.pdf
    File Function: First Version, 2006
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    More about this item

    Keywords

    reciprocity; fairness; sequential game; cheap-talk; efficiency wages;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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