Revisiting Gift Exchange: Theoretical Considerations and a Field Test

There is conflicting laboratory and field evidence on the effectiveness of gift exchange -- the exchange of above-market wages for above-minimal effort -- as an incentive mechanism. We investigate this conflict by theoretically identifying the factors dampening gift exchange in the field -- habituation to the gift, fatigue, and small gift size -- and by subsequently implementing a field experiment tailored to avoid them as well as two others: selection of better workers and ambiguous kindness signals. Still, we find no evidence of gift exchange in the field. Additional tests suggest this was not due to an effort ceiling. Further, a subsequent laboratory experiment investigating whether the absence of gift exchange could be driven by a want of reciprocal workers, shows that a substantial portion behaved prosocially in laboratory, but failed to engage in gift exchange in the field. All workers, however, responded to piece rates. Our results favor a classical model of preferences.