When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets

Ernst Fehr, Erich Kirchler, Andreas Weichbold and Simon Gächter

Journal of Labor Economics, 1998, vol. 16, issue 2, 324-51

Abstract: Do competitive markets remove the effect of social norms on market outcomes or are norms capable of exerting a persistent influence? In this article, the authors report the results of a series of competitive market and bilateral bargaining experiments. They indicate that the norm of reciprocity gives rise to wages that are persistently above the competitive level. Moreover, wages under bilateral bargaining conditions coincide with wages in competitive markets, indicating that competition has a limited effect when the norm of reciprocity is operative. In addition, the results show that workers' reciprocal behavior increases effort and, hence, the efficiency of trades. Coauthors are Erich Kirchler, Andreas Weichbold, and Simon Gachter. Copyright 1998 by University of Chicago Press.

Date: 1998
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