Ratio Working Papers
Reciprocity and Payment Schemes: When Equality Is Unfair
(), Steffen Altmann
(), Sebastian Kube
() and Matthias Wibral
Abstract: A growing literature stresses the importance of
reciprocity, especially for employment relations. In this paper, we study
the interaction of different payment modes with reciprocity. In
particular,we analyze how equal wages affect performance and effciency 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 and
effciency. 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 is rather driven by the fact that reciprocity is
violated far more frequently in the equal wage treatment. Agents suffering
from a violation of reciprocity subsequently withdraw effort. Our results
suggest that individual reward and punishment opportunities are crucial for
making reciprocity a powerful contract enforcement device.
Keywords: laboratory experiment; wage setting; wage equality; gift exchange; reciprocity; social norms; incomplete contracts; multiple agents; (follow links to similar papers)
JEL-Codes: C92; J33; J41; M12; M52; (follow links to similar papers)
25 pages, December 4, 2006
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