Research

Effort Timing and Efficiency in Experimental Gift Exchanges

Abstract: The ``gift exchange" (GX) and ``robust markets for experience goods" (RMEG) share the same game theoretic prediction of sellers providing the minimum possible effort or quality, driven by the presence of asymmetric information. However, it has repeatedly been observed in experiments that RMEG conform to these predictions while GX experiments do not. It is proposed that there is a key underlying difference in the design of these two markets which causes this disparity in results: the timing of quality choices in RMEG experiments (quality predetermined) does not match the timing of effort choices in GX experiments (effort determined after sale). The hypothesis was that workers would be less sensitive to reciprocity (display lower responsiveness to higher wages) when effort is predetermined, as in RMEG. To test this hypothesis, a GX experiment was conducted where the timing at which workers commit to an effort level was varied. The data indicate significant effects on worker behavior. While pre-determining effort before exchange causes a decreased sensitivity to reciprocity, it also causes a corresponding increase in the willingness of workers to provide higher effort regardless of wage. Furthermore, the behavior of firms also changed: firms offered relatively lower wages and their wage-offerings became less responsive to receiving high levels of effort. These changes in firm and worker behavior resulted in significant effects on other key outcomes pertaining to surplus and efficiency.

Keywords: Gift Exchange, Timing, Experience Goods, Reciprocity

JEL Codes: C92, D82, D47

Presentations: Economic Science Association 2024, 2025 and Southern Economic Association 2025