John P. Lightle

The Gift of Advice: Communication in a Bilateral Gift Exchange Game

We augment a standard bilateral gift exchange game so employees can send messages at the same time as choosing an effort level. Employee effort (controlling for wages) is unaffected by allowing messages, but wages dramatically increase. Messages affect wages because employees give managers advice to set higher wages, usually explaining that this will result in higher effort. This advice prompts managers to try higher wages, helping them learn that raising wages increases their payoffs. In a follow-up experiment, we directly provide managers with additional information about the relationship between wages and effort. This too causes wages to increase, but to a lesser extent than allowing messages. Our results highlight the critical role of learning in generating gains from positive gift exchange. Copyright Economic Science Association 2013

The pay-what-you-want business model: Warm glow revenues and endogenous price discrimination

We explore the potential benefits of an up-and-coming business model called “pay-what-you-want” in an environment where consumers experience a warm glow by patronizing a particular firm. We show that, given a social norm regarding minimum contributions, a pay-what-you-want firm should announce a minimum suggested contribution, which is positive—but smaller than the profit-maximizing single price—so as to benefit from “endogenous price discrimination,” whereby consumers differentially contribute more than the suggested minimum. Furthermore, a pay-what-you-want scheme can improve market efficiency and, in special cases, generate more profit than a standard posted price scheme. These results are robust to alternate motivations for generosity, including gift-exchange.

The Effect of Structured Emotion Expression on Reciprocity in Bilateral Gift Exchange

Abstract We augment a standard bilateral gift-exchange game to allow employees to communicate their gratitude for, or disapproval toward, the wage assigned to them by their manager. This provides employees with a means of reciprocation or emotion expression toward the employee which is not available in a standard gift-exchange game and may substitute for the higher-than-equilibrium efforts commonly seen in this environment. We find that employees express gratitude or disapproval according to the wage received, but these messages are not a substitute for monetary reciprocation as the relationship between wages and effort is unchanged. These results suggest that employees view the messages as a form of emotional expression independent from rewarding or punishing managers. Average wage levels are little affected by allowing messages, although wages do fall more over time in the absence of messages and individual managers’ wage choices are affected by the messages they receive.