We develop a model of manager-employee relationships where employees care more for their manager when they are more convinced that their manager cares for them. Managers can signal their altruistic feelings towards their employees in two ways: by offering a generous wage and by giving attention. Contrary to the traditional gift-exchange hypothesis, we show that altruistic managers may offer lower wages and nevertheless build up better social-exchange relationships with their employees than egoistic managers do. In such equilibria, a low wage signals to employees that the manager has something else to offer -- namely, a lot of attention -- which will induce the employee to stay at the firm and work hard. Our predictions are well in line with some recent empirical findings about gift exchange in the field.

conditional altruism, extra-role behavior, gift exchange, manager-employee relationships, reciprocity, sabotage, signaling game, social exchange, wages
Economics of Contract Law (jel D86), Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets (jel J41), Personnel Economics: General (jel M50), Labor Management (team formation, worker empowerment, job design, tasks and authority, job satisfaction) (jel M54), Labor Contracting Devices: Outsourcing; Franchising; Other (jel M55)
Tinbergen Institute
hdl.handle.net/1765/14043
Tinbergen Institute Discussion Paper Series
Discussion paper / Tinbergen Institute
Tinbergen Institute

Dur, A.J. (2008). Gift Exchange in the Workplace (No. TI 2008-082/1). Discussion paper / Tinbergen Institute. Tinbergen Institute. Retrieved from http://hdl.handle.net/1765/14043