Explaining gift exchange – The limits of good intentions

This paper explores the limitations of intention-based social preferences as an explanation of gift-exchange between a firm and a worker. In a framework with one self-interested and one reciprocal player, gift-giving never arises in equilibrium. Instead, any equilibrium in a large class of multistage games must involve mutually unkind behavior of both players. Besides gift-exchange, this class of games also includes moral hazard models and the rotten kid framework. Even though equilibrium behavior may appear positively reciprocal in some of these games, the self-interested player never benefits from reciprocity. We discuss the relation of these results to the theoretical and empirical literature on giftexchange in employment relations. DOI: https://doi.org/10.1111/jeea.12086 Posted at the Zurich Open Repository and Archive, University of Zurich ZORA URL: https://doi.org/10.5167/uzh-99451 Accepted Version Originally published at: Netzer, Nick; Schmutzler, Armin (2014). Explaining gift exchange – The limits of good intentions. Journal of the European Economic Association, 12(6):1586-1616. DOI: https://doi.org/10.1111/jeea.12086 Explaining Gift-Exchange – The Limits of Good Intentions∗ Nick Netzer University of Zürich Armin Schmutzler University of Zürich, CEPR and ENCORE Third Revised Version September 2013