When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets

TLDR

The study examines whether competitive markets eliminate the influence of social norms on outcomes or whether norms persistently shape behavior. The authors conduct competitive market and bilateral bargaining experiments to test the impact of reciprocity norms. Results show that reciprocity norms raise wages above competitive levels, that wages in bargaining match competitive wages, and that reciprocal behavior boosts effort and trade efficiency.

Abstract

Do competitive markets remove the effect of social norms on market outcomes? Or are norms capable of exerting a persistent influence? In this article we report the results of a series of competitive market and bilateral bargaining experiments. They indicate that the norm of reciprocity gives rise to wages that are persistently above the competitive level. Moreover, wages under bilateral bargaining conditions coincide with wages in competitive markets, indicating that competition has a limited effect when the norm of reciprocity is operative. In addition, the results show that workers' reciprocal behavior increases effort and, hence, the efficiency of trades.