WHEN SOCIAL NORMS OVERPOWER COMPETITION - GIFT EXCHANGE IN EXPERIMENTAL LABOR-MARKETS

Do competitive markets remove the effect of social norms on market out comes? Or are norms capable of exerting a persistent influence! In thi s article we report the results of a series of competitive market and bilateral bargaining experiments. They indicate that the norm of recip rocity gives rise to wages that are persistently above the competitive level. Moreover, wages under bilateral bargaining conditions coincide with wages in competitive markets, indicating that competition has a limited effect when the norm of reciprocity is operative. In addition, the results show that workers' reciprocal behavior increases effort a nd, hence, I-he efficiency of trades.