Gift Exchange and the Sabbath Part 2

Quick, before reading any further … What are you thankful for? List the top 5 things that come to mind.

Did salvation or God's great love crack the list? If not, please do not think I was setting you up for guilt. Instead, it was meant as an honest inventory of our thankfulness.

In Part 1 of this post I conjectured that contemplation can help Christians to recognize they are the recipients of a great gift. After contemplation the gift recipient responds with joy on the Sabbath and the liturgy acts as a gift returned to God. It is glorious to think that this beautiful gift exchange has occurred for two millennia and can occur with great purpose, meaning, and fruit the rest of our lives. I wish now to illuminate this set of statements with some background from economics.

In economics there has been a theory of "gift exchange" around for almost 30 years. Nobel Laureate George Akerlof asked the question about why some employers would pay wages above the going market rate. The classic example of this is that Henry Ford paid his workers a wage of $5 per hour when other similarly skilled workers earned about half of that. In fact, Henry Ford doubled the wages of his workers in 1914. As a side note, you commonly hear people contend that he did this so workers could afford the product.; however, this is unlikely.  Akerlof conjectured that these above market clearing wages would occur to attract higher quality workers, reduce turnover, and increase the productivity of workers. And, for some employers it could stem from a sense of fairness.

Others also did theoretical work in this area but to keep things brief I will move on to the experimental work. Ernst Fehr is probably the best known experimental economist working in the area of "gift exchange". The set up is a simple framework I'll explain below.

Consider an employer and employee. The employer can choose a wage of {0,1,2,…,10} and the employee can choose an effort level of {0,1,2,…,10}. The exact payment each actor receives can be manipulated; but, one simple example would be that the employer receives profit= e - w and the worker receives a payment=w - e. In words, the employer benefits from the effort of the worker but must pay the worker. Meanwhile, the employee benefits from the wage but has an effort cost associated with working.

Suppose the timing is such that the employer sends some wage first, let's say, w = 8. What would the employee do? Well, according to standard game theoretic arguments the employee will choose e=0. Game theory would predict this because the employee's payment is reduced when choosing e > 0.  In numbers 8 > 8 - e. This argument would still hold if they were playing the game for many (finite) periods due to the argument of backward induction. Therefore, the employer should know this and offer a w=0.

This might sound quite strange to some of our readers. In fact, when I suggested that game theory predicts e=0 you might have balked and cursed game theory in your heart. And, you might have done this because you believed nobody receiving w=8 would return the employer with e=0! In fact, you're right (on average). There have been numerous studies that demonstrate that people do *not* play the game according to game theoretic predictions. People are reciprocal and return great effort when they have been given a great wage. But, the perception must be that they received a great wage when the employer didn't have to give it to them.

Now I want to transition back to the starting place. Contemplation helps us to correctly see the gift. If we do not see the gift we will not feel compelled to return the gift.