Reciprocity and wage undercutting

Martin Dufwenberg, Georg Kirchsteiger

Research output: Contribution to journalArticlepeer-review

38 Scopus citations

Abstract

It is well documented that employers refuse to hire workers who offer their services at less than the prevailing wage. The received explanation is that workers are motivated by reciprocity - they desire to reward kindness and punish hostility. To refuse an outsider's underbid is viewed as a kind choice that is met with good effort; a low wage is viewed as an insult that is met with shirking. We have developed a general theory of reciprocity which in this paper is applied to a wage-setting game played by an employer and two workers. We show that when workers are motivated by reciprocity, equilibrium behaviour accords well with the aforementioned stylized facts. (C) 2000 Elsevier Science B.V. All rights reserved.

Original languageEnglish (US)
Pages (from-to)1069-1078
Number of pages10
JournalEuropean Economic Review
Volume44
Issue number4-6
DOIs
StatePublished - May 2000

Keywords

  • Reciprocity
  • Unemployment
  • Wage underbidding

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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