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Labor market gift-exchange and output market competition

On 23rd May 2016 (1-2pm) Arno Riedl, Professor of Public Economics at the Maastricht University will give a presentation about “Labor market gift-exchange and output market competition" in Q4.245. Afterwards, Mr. Riedl will be available for questions and discussions. His presentation is part of

In this paper we study gift-exchange in labor relations when firms have to compete on the output market. Workers and firms are engaged in a contractually incomplete relationship where firms offer wages and workers respond with effort. Effort determines the output quantity firms can bring to the market. We study three different output market competition scenarios: monopoly, duopoly, and quadropoly. We derive theoretical predictions for standard selfish preferences as well as for reciprocal preferences using a reduced form model. In line with the reciprocity model, our experimental results show that wages and effort respond to the intensity of output market competition and decrease with increasing competition. Importantly, the wage-effort relationship is largely unaffected by competition, showing that reciprocal firm-worker relations are not destroyed when firms face competition. In consequence, more competition theoretically and empirically increases efficiency but leads to a redistribution of surplus from firms to workers and consumers.

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