A Model of reciprocal fairness

application to the labour contract

Stéphane Mahuteau

Research output: Contribution to journalArticle

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 noncompensating 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.
Original languageEnglish
Pages (from-to)1-44
Number of pages44
JournalMacquarie economics research papers
Volume9
Publication statusPublished - 2006

Keywords

  • reciprocity
  • fairness
  • sequential game
  • cheap-talk
  • efficiency wages

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