Reciprocity Game

Charles Holt

Welfare Economics: Allocative Efficiency, Externalities, Fairness, Altruism

Experiment Software

This program runs a set of "reciprocity" games. The first mover (employer) in each group makes a wage offer, and the second movers (workers) choose effort levels, which are costly to the workers but which benefit the employer. The Nash equilibrium for selfish preferences in a one-shot game is to offer the minimum possible effort, since the wage is paid irrespective of effort. Efforts may be higher with fixed matchings, but even then, increases in the number of workers per employer tend to increase the incentive that workers have to "free ride" on others' efforts. The game highlights issues of reciprocity and strategy.