A Velvet Glove Needs and Iron Fist: Gift Delivery Matters for the Efficacy of Gift Exchange

Abstract: We study whether two aspects of the gift delivery matter for workers' effort response to above-market wage increases: the employer-employee acquaintance and the upfront communication of the employer's first-order belief about the effort response to the gift. Randomizing acquaintance and expectation communication in an otherwise standard gift exchange field experiment, we show that acquaintance damages the gift exchange, while combining it with a clear statement from the principal about her expectation on reciprocal effort, amplifies it. The result that if gifts are delivered with a velvet glove (i.e., when the employer-employee have met) must be at the expense of using an iron fist (asking for effort in return) highlights that reciprocity is sensitive to subtle delivery details and highlights that a crucial aspect of compensation is its implementation.