What determines reciprocity in employment relations? We conducted a controlled field experiment to measure the extent to which monetary and non-monetary gifts affect workers' performance. We find that non-monetary gifts have a much stronger impact than monetary gifts of equivalent value. We also observe that when workers are offered the choice, they prefer receiving money but reciprocate as if they received a non-monetary gift. This result is consistent with the common saying, "it's the thought that counts". We underline this point by showing that also monetary gifts can effectively trigger reciprocity if the employer invests more time and effort into the gift's presentation.

The paper reports laboratory experiments with a two route choice scenario. In each session 18 subjects had to choose between a main road M and a side road S. The capacity of M was larger. Feedback was given in treatment I only on the subjects' own travel time and in treatment II on travel time for M and S. The main results are as follows: • Mean numbers on M and S are near to pure equilibrium. • Fluctuations persist until the end of the sessions. • The total number of changes is significantly greater in treatment I. • Subjects' road changes and payoffs are negatively correlated. • A direct response mode results in more changes for bad payoffs whereas a contrary response mode shows opposite reactions. • Simulations of an extended payoff sum learning model fits the main results of the statistical evaluation of the data.

Employment contracts are often incomplete, leaving many responsibilities subject to workers' discretion. High work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms. We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20 percent. An equivalent wage increase, however, did not result in any productivity gains. The results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output, leaving enough room for positive reactions. Altogether, these results provide evidence consistent with a model of reciprocity, as opposed to inequality aversion.JEL classification: C93, J30.

Abstract:We study how different payment modes influence the effectiveness of gift exchange as a contract enforcement device. In particular, we analyze how equal wages affect performance and efficiency 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. 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 instead driven by the fact that the norm of equity is violated far more frequently in the equal wage treatment. Agents care about how they are treated relative to each other. After having suffered from violations of the equity principle, they withdraw effort. These findings hold even after controlling for the role of intentions, as we show in a third treatment. Our results suggest that adherence to the norm of equity is a necessary prerequisite for successful establishment of gift-exchange relations.JEL classification: J33, D63, M52, C92, J41.