Reciprocal Gift Exchange

This game is based on the reciprocal gift exchanges games of Fehr et al.  They find evidence of an upward sloping wage-effort curve when applied to labor markets where severe moral hazard problems are present.  Here are the instructions for the in-class version of the experiment.

No unemployment, wages between $1 and $2, and efforts equal to 1 are consistent with competitive equilibrium. 

Round 1

  • Unemployed workers - 4

  • Workers exerting excess effort - 2

  • Firms paying more than $2 - 2

   Worker

     Wage

      Effort

1

Unemployed

2

3

2

3

2

1

4

2

1

5

2

1

6

Unemployed

7

3

2

8

2

1

9

Unemployed

10

Unemployed

Round 2

  • Unemployed workers - 3

  • Workers exerting excess effort - 3

  • Firms paying more than $2 - 3

    Worker

     Wage

      Effort

1

3

2

2

2

1

3

Unemployed

4

2

2

5

2

1

6

Unemployed

7

3

2

8

2

1

9

3

1

10

Unemployed

Round 3

  • Unemployed workers- 1

  • Workers exerting excess effort - 4

  • Firms paying more than $2 - 3

        Worker

          Wage

          Effort

    1

    1.75

    1

    2

    3

    2

    3

    2

    1

    4

    2

    2

    5

    3

    2

    6

    Unemployed

    7

    1.77

    1

    8

    3

    2

    9

    1.75

    1

    10

    1.76

    1

Conclusions