Individual vs. collective contracts: An experimental investigation using the gift exchange game

This paper compares individual with collective contracts using modified repeated gift exchange games. The game had two variations, both following a partner design. In the individual variation different workers in the same firm can receive separate wages, and in the collective variation all workers in the same firm receive the same wage. These two variations are played altering the order. Thus the experiment has four treatments, two within subjects (regarding the games played) and two between subjects (regarding the order in which the games are played). We did not find significant differences between the two variations of the game when subjects had no experience. However, individual agreements turned out to be more efficient when subjects have previously experienced collective agreements. This result suggests subjects learned to reciprocate when they played the collective variation followed by the individual variation of the gift exchange game.