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

University of Vienna

Wolfgang J. Luhan

University of Portsmouth - Faculty of Business - Department of Economics

Matthias Sutter

Max Planck Institute for Research on Collective Goods

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 or http://dx.doi.org/10.2139/ssrn.2028295

Martin G. Kocher (Contact Author)

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Wolfgang J. Luhan

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

Portsmouth PO4 8JF
United Kingdom

Matthias Sutter

Max Planck Institute for Research on Collective Goods ( email )

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

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