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On the Relevance and Composition of Gifts within the Firm: Evidence from Field Experiments

Author

Listed:
  • Charles Bellemare
  • Bruce Shearer
Abstract
We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers’ optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers’ outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.

Suggested Citation

  • Charles Bellemare & Bruce Shearer, 2009. "On the Relevance and Composition of Gifts within the Firm: Evidence from Field Experiments," Cahiers de recherche 0932, CIRPEE.
    • Handle: RePEc:lvl:lacicr:0932
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    References listed on IDEAS

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    Cited by:

    1. Bruce S. Shearer, 2022. "Piece‐rate cuts and ratchet effects," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(3), pages 1371-1403, August.
    2. Stefano DellaVigna & John A. List & Ulrike Malmendier, 2012. "Testing for Altruism and Social Pressure in Charitable Giving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 1-56.
    3. Englmaier, Florian & Roider, Andreas & Sunde, Uwe, 2014. "The Role of Communication of Performance Schemes," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 507, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Stefano DellaVigna & John A. List & Ulrike Malmendier & Gautam Rao, 2022. "Estimating Social Preferences and Gift Exchange at Work," American Economic Review, American Economic Association, vol. 112(3), pages 1038-1074, March.
    5. Carpenter, Jeffrey, 2016. "The labor supply of fixed-wage workers: Estimates from a real effort experiment," European Economic Review, Elsevier, vol. 89(C), pages 85-95.
    6. Florian Englmaier & Stephen Leider, 2020. "Managerial Payoff and Gift-Exchange in the Field," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(2), pages 259-280, March.
    7. David Huffman & Michael Bognanno, 2018. "High-Powered Performance Pay and Crowding Out of Nonmonetary Motives," Management Science, INFORMS, vol. 64(10), pages 4669-4680, October.
    8. Cardella, Eric & Depew, Briggs, 2018. "Output restriction and the ratchet effect: Evidence from a real-effort work task," Games and Economic Behavior, Elsevier, vol. 107(C), pages 182-202.
    9. Marco Faillo & Luigi Mittone & Costanza Piovanelli, 2018. "Cash posters in the lab," CEEL Working Papers 1801, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    10. Matthias Fahn & Anne Schade & Katharina Schüßler, 2017. "What Drives Reciprocal Behavior? The Optimal Provision of Incentives over the Course of Careers," CESifo Working Paper Series 6635, CESifo.
    11. Livio, Luca & De Chiara, Alessandro, 2019. "Friends or foes? Optimal incentives for reciprocal agents," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 245-278.
    12. Florian Englmaier & Andreas Roider & Uwe Sunde, 2017. "The Role of Communication of Performance Schemes: Evidence from a Field Experiment," Management Science, INFORMS, vol. 63(12), pages 4061-4080, December.
    13. Non, Arjan, 2012. "Gift-exchange, incentives, and heterogeneous workers," Games and Economic Behavior, Elsevier, vol. 75(1), pages 319-336.
    14. Cardella, Eric & Depew, Briggs, 2016. "Testing for the Ratchet Effect: Evidence from a Real-Effort Work Task," IZA Discussion Papers 9981, Institute of Labor Economics (IZA).
    15. Orhun, A. Yeşim, 2018. "Perceived motives and reciprocity," Games and Economic Behavior, Elsevier, vol. 109(C), pages 436-451.
    16. Malmendier, Ulrike M. & DellaVigna, Stefano & List, John & Rao, Gautam, 2020. "Estimating Social Preferences and Gift Exchange with a Piece-Rate Design," CEPR Discussion Papers 14931, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Gift giving; structural models; field experiments;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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