Testing a Forgotten Aspect of Akerlof's Gift Exchange Hypothesis: Relational Contracts with Individual and Uniform Wages

45 Pages Posted: 25 Mar 2012

See all articles by Martin G. Kocher

Martin G. Kocher

Ludwig Maximilian University of Munich - Faculty of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Göteborg University - School of Business, Economics and Law; Queensland University of Technology - School of Economics and Finance

Wolfgang J. Luhan

University of Portsmouth - Faculty of Business - Department of Economics

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Cologne - Department of Economics

Abstract

Empirical work on Akerlof's theory of gift exchange in labor markets has concentrated on the fair wage-effort hypothesis. In fact, however, the theory also contains a social component that stipulates that homogenous agents that are employed for the same wage level will exert more effort, resulting in higher rents and higher market efficiency, than agents that receive different wages. We present the first test of this component, which we call the fair uniform-wage hypothesis. In our laboratory experiment, we establish the existence of a significant efficiency premium of uniform wages. However, it is not the consequence of a stronger level of reciprocity by agents, but of the retrenchment of sanctioning options on the side of principals with uniform wages. Hence, implementing limitations to contractual freedom can have efficiency-enhancing effects.

Keywords: gift exchange, multiple agents, uniform contracts, collective wage, experiment

JEL Classification: C72, C91, C92, D21, J31, J50

Suggested Citation

Kocher, Martin G. and Luhan, Wolfgang J. and Sutter, Matthias, Testing a Forgotten Aspect of Akerlof's Gift Exchange Hypothesis: Relational Contracts with Individual and Uniform Wages. IZA Discussion Paper No. 6415. Available at SSRN: https://ssrn.com/abstract=2028295

Martin G. Kocher (Contact Author)

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Wolfgang J. Luhan

University of Portsmouth - Faculty of Business - Department of Economics ( email )

Portsmouth PO4 8JF
United Kingdom

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Cologne - Department of Economics

Cologne, 50923
Germany

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