Gift Exchange and Workers' Fairness Concerns: When Equality Is Unfair

Johannes Abeler, Steffen Altmann, Sebastian Kube and Matthias Wibral ()
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Matthias Wibral: Maastricht University

No 4262, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study how different payment modes influence the effectiveness of gift exchange as a contract enforcement device. In particular, we analyze how horizontal fairness concerns affect performance and efficiency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two agents. The principal pays equal wages in one treatment and can set individual wages in the other. We find that the use of equal wages elicits substantially lower efforts. This is not caused by monetary incentives per se since under both wage schemes it is profit-maximizing for agents to exert high efforts. The treatment difference instead seems to be driven by the fact that the norm of equity is violated far more frequently in the equal wage treatment. After having suffered from violations of the equity principle, agents withdraw effort. These findings hold even after controlling for the role of intentions, as we show in a third treatment. Our results suggest that adherence to the norm of equity is a necessary prerequisite for successful establishment of gift-exchange relations.

Keywords: gift exchange; equity; wage equality; wage setting; incomplete contracts; reciprocity (search for similar items in EconPapers)
JEL-codes: C92 D63 J33 J41 M52 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009-06
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published - published in: Journal of the European Economic Association, 2010, 8(6), 1299-1324

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Related works:
Journal Article: Gift Exchange and Workers' Fairness Concerns: When Equality is Unfair (2010)
Working Paper: Gift Exchange and Workers' Fairness Concerns - When Equality Is Unfair (2009)
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