Reciprocity and Wage Undercutting

Martin Dufwenberg

No 1999:13, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: It is well-documented that employers refuse to hire workers who offer their services at less than the prevailing wage. The received explanation is that workers are motivated by reciprocity¾ they desire to reward kindness and punish hostility. To refuse an outsider’s under-bid is viewed as a kind choice that is met with good effort; a low wage is viewed as an insult that is met with shirking. We have developed a general theory of reciprocity which in this paper is applied to a wage-setting game played by an employer and two workers. We show that when workers are motivated by reciprocity, equilibrium behaviour accords well with the aforementioned stylized facts.

Keywords: Reciprocity; wage underbidding; unemployment (search for similar items in EconPapers)
JEL-codes: D63 E24 J41 (search for similar items in EconPapers)
Pages: 17 pages
Date: 1999-11-04
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Related works:
Journal Article: Reciprocity and wage undercutting (2000)
Working Paper: Reciprocity and wage undercutting (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sunrpe:1999_0013

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