Partial Gift Exchange in an Experimental Labor Market : Impact of Subject Population Differences , Productivity Differences and Effort Requests on Behavior

We report a gift exchange experiment in which there are no opportunities for reputation or repeated play game effects. In each play of the game, firms make wage offers to workers, and workers respond by either accepting or rejecting an offer and determining an effort level. Higher effort levels are more costly to workers and there is no mechanism for firms to punish or reward workers based on their effort. Consistent with the partial gift exchange hypothesis workers provide more effort at higher wages, but undergraduate students provide substantially less effort than do MBAs. Evidence suggests that this difference results from differences in prior work experience that carry over into the laboratory. Firms’ non-binding effort requests are at least partially honored by undergraduates and MBAs, and result in a significant increase in overall effort for undergraduates (but not for MBAs). Workers do not provide more effort to lower productivity firms even though it is relatively more costly for these firms to offer higher wages.