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A Model of Reciprocal Fairness: Application to the Labour Contract

Stephane Mahuteau ()

No 609, Research Papers from Macquarie University, Department of Economics

Abstract: We investigate to what extent reciprocity, exhibited by employers and employees, lead to stable gift exchange practices in the labour contract, giving rise to non-compensating wage differentials among industries and firms. We use the concept of Sequential Reciprocity Equilibrium (Dufwenberg and Kirchsteiger 1998, 2004) to incorporate players’ preferences for reciprocity in their utility function. We show that successful gift exchange practices may arise if both players actually care for reciprocity. We test the predictions of the model using a matched employer-employee French dataset. Our results show that French employers and employees’ decisions are influenced by reciprocity concerns.

Keywords: reciprocity; fairness; sequential game; cheap-talk; efficiency wages (search for similar items in EconPapers)
JEL-codes: C72 J33 J41 (search for similar items in EconPapers)
Pages: 44 pages.
Date: 2006-11
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-exp, nep-gth, nep-lab, nep-soc and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:mac:wpaper:0609

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