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Shocks and Relationships

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In this paper we experimentally study effects of exogenous revenue shocks on long-term relationships between firms and workers. While we find that shocks have no significant effect on wages and a little effect on the duration of relationships, we observe their significant effect on effort levels: given the same wage, the workers exert lower effort in the condition with shocks than in the condition with no shocks. As a result, the presence of shocks in our experiment decreases market efficiency.

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  • Ninghua Du & Maroš Servátka, 2009. "Shocks and Relationships," Working Papers in Economics 09/07, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:09/07
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    File URL: https://repec.canterbury.ac.nz/cbt/econwp/0907.pdf
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    1. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, May.
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    More about this item

    Keywords

    Experiment; exogenous revenue shocks; gift exchange;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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