Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235362 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8992
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We derive, compare, and test the predictions of three models of gift exchange: Classical (CGE); Augmented (AGE) based on unexpected wage surprises and first order beliefs; and Belief-based (BGE) that uses second order beliefs to formally model guilt-aversion. Motivated by Akerlof (1982), we also introduce signals of exogenous industry wage norms, θw, and effort norms, θe. We study the effects on the worker’s optimal effort of exogenous variation in the wage, w, the signals θw, θe, and a signal of firm’s expectations of effort from the worker, s. All three models successfully predict gift exchange (higher effort in response to higher w). The AGE and the CGE models fail to explain the data for the worker’s effort responses to the signals θw, θe, and s. The BGE model successfully explains the data in all these respects. Gift exchange is underpinned by guilt-aversion and a formal modelling of second order conditional beliefs.
Subjects: 
gift exchange
reciprocity
guilt-aversion
psychological game theory
belief-based models
industry wage norms
industry effort norms
JEL: 
D01
D91
Document Type: 
Working Paper
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