Reciprocity in labor market relationships: Evidence from an experiment across high-income OECD countries

Waichman, Israel et al. Article Reciprocity in labor market relationships: Evidence from an experiment across high-income OECD countries Games Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Waichman, Israel et al. (2015) : Reciprocity in labor market relationships: Evidence from an experiment across high-income OECD countries, Games, ISSN 2073-4336, MDPI, Basel, Vol. 6, Iss. 4, pp. 473-494, https://doi.org/10.3390/g6040473 This Version is available at: https://hdl.handle.net/10419/167956 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ Games 2015,6, 473-494; doi:10.3390/g6040473 OPEN ACCESS games ISSN 2073-4336 www.mdpi.com/journal/games Article Reciprocity in Labor Market Relationships: Evidence from an Experiment across High-Income OECD Countries Israel Waichman 1,*, Ch’ng Kean Siang 2, Till Requate 3, Aric P. Shafran 4, Eva Camacho-Cuena 5, Yoshio Iida 6and Shosh Shahrabani 7 1Department of Economics, University of Heidelberg, Berheimerstr. 20, Heidelberg 69115, Germany 2Department of Economics, School of Social Sciences, Universiti Sains Malaysia, Penang 11800, Malaysia; E-Mail: [email protected] 3Department of Economics, University of Kiel, Olshausenstr. 40, Kiel 24118, Germany; E-Mail: [email protected] 4Department of Economics, California Polytechnic State University, San Luis Obispo, CA 93407, USA; E-Mail: [email protected] 5Department of Economics, University Jaume I, Castellón 12071, Spain; E-Mail: [email protected] 6Department of Economics, Kyoto Sangyo University, Kyoto 6038555, Japan; E-Mail: [email protected]yoto-su.ac.jp 7Department of Economics, The Max Stern Yezreel Valley College, Emek Yezreel 19300, Israel; E-Mail: [email protected] *Author to whom correspondence should be addressed; E-Mail: w[email protected]; Tel.: +49-62-2154-8012; Fax: +49-62-2154-8020. Academic Editor: Ananish Chaudhuri Received: 20 July 2015 / Accepted: 28 September 2015 / Published: 9 October 2015 Abstract: We study differences in behavior across countries in a labor market context. To this end, we conducted a bilateral gift-exchange experiment comparing the behavior of subjects from five high-income OECD countries: Germany, Spain, Israel, Japan and the USA. We observe that in all countries, effort levels are increasing while rejection rates are decreasing in wage offers. However, we also find considerable differences in behavior across countries in both one-shot and repeated relationships, the most striking between Germany and Spain. We also discuss the influence of socio-economic indicators and the implications of our findings. Keywords: gift exchange; reciprocity; cross-country; economic experiment; labor market Games 2015,6474 JEL classifications: D03; C91; D81 1. Introduction There is now a large literature that models incomplete labor contracts between firms and their workers as a “gift exchange”, where the worker perceives his/her wage as a “gift” and reciprocates with (costly) effort that benefits the firm. In the labor market context, this is referred to as the “efficiency wage hypothesis” (see [1,2]). Subsequently, a large literature of gift-exchange experiments has evolved (initially started by [3]; see the recent review by [4]), testing the efficiency wage hypothesis in a controlled environment. The typical findings of these gift-exchange studies are that both wage offers and effort levels are above the minimum and that repeated interaction between firms and workers leads to higher effort levels (e.g., [5–7]). In the current study, we use a bilateral gift-exchange game as a work horse model to explore whether and to what extent behavioral differences are observed in a sequence of one-shot interactions (random-matching protocol) and also in repeated relationships (fixed matching) across subjects from five high-income OECD countries: Germany, Israel, Japan, Spain and the USA. Although there is growing recognition that culture matters for a variety of economic outcomes (see, e.g., [8–11]), even models of social preferences that allow for individual-specific characteristics do not include an explicit culture- or country-specific variable.1Moreover, despite the growing experimental literature comparing the behavior of subjects from different countries, there are only a few studies employing subjects from more than four countries (for example, [13–18]) and no such study of the labor market gift-exchange game. In the absence of a concrete model that predicts behavior across countries, our approach is similar to [16] (and also to other studies, such as [19,20]), in that we want to learn if there is evidence of differences in behavior across countries, rather than testing a particular theory. Bilateral gift-exchange experiments have already been conducted in a variety of countries, mostly in Europe and the USA (see [4]). The contribution of this paper is to carefully control the experimental procedures across countries to allow for direct comparisons of results. In this respect, we utilize the inequity aversion model by [21] to study if differences in behavior could be explained by different aversions to advantageous inequity across countries. Moreover, our findings broaden the set of countries where comparable gift-exchange studies have been conducted, so that we can combine our results with previous research to investigate if some prominent socio-economic indicators could account for the differences in behavior. Although there has not yet been a multi-country gift-exchange study, results from cross-country trust game experiments may shed some light on the expected results of bilateral gift-exchange studies due to the similarities in the two games. Like the gift-exchange game, the trust game ([22]) is a two-player 1In contrast to the homo economicus model assuming that individuals are rational money maximizers, models of “social preferences” assume that individuals do not only care about their own monetary gains, but also about other individuals (see a review by [12]). Games 2015,6475 game that measures reciprocity.2The static subgame perfect equilibrium under standard preferences is similar in both games (no reciprocity in the second stage and, hence, no giving in the first stage). Here, we briefly present the results of trust game studies involving at least two of our five countries.3 Croson and Buchan [26] conducted a trust game experiment with subjects from China, South Korea, Japan and the United States, finding that women reciprocate more than men in all countries, but finding no differences across countries. Buchan et al. [27] conducted an additional trust game study in those four countries, finding that American and Chinese subjects are the most trusting, while Chinese and Korean subjects are the most reciprocal.4Hennig-Schmidt et al. [30] find, in a trust game study with German, Israeli, and Palestinian subjects, that Palestinians trust more than Germans, who trust more than Israelis. Back transfers by Germans and Israelis are not different, but both are lower than that of Palestinians. The results of trust games in different countries are summarized in the meta-analysis by [31], indicating no large differences in average behavior across our sample of countries, i.e., subjects sent (sent back) between 51% and 59% (32% and 45%) of the possible amount (see Table A1 in the Appendix). As to the effect of repetition [32] compare the standard (one-shot) trust game with a repeated (fixed-matching) game. They observe that in the repeated game, subjects sent (sent back) 75% (56%) of the possible amount, while in the one-shot game, subjects sent (sent back) only 50% (38%) of the possible amount. In addition, Bohnet and Huck [33] study a binary trust game under stranger and partner matching. They find that 59% (61%) of the first (second) movers choose to trust (reciprocate) in partner matching compared to 32% (30%) in the stranger matching. Note that there are two important differences between the bilateral gift-exchange game and the trust game: First, in contrast to the neutrally-framed trust game, our design imposes the labor market context (with which individuals in virtually all countries are familiar).5Second, the parameters in the bilateral gift exchange game are different from the trust game, and this may affect behavior. Particularly, in the bilateral gift-exchange game, a firm earns a very low payoff if its assigned worker does not reciprocate. By contrast, in the trust game, the first mover can assure himself/herself a significant payoff, regardless of the reciprocity of the second mover. Our main findings can be summarized as follows: In the random matching treatments, we observe that Germans offer the highest wages, while Spanish offer the lowest. We do not observe differences in rejection rates across treatments. Further, we find that the efficiency wage hypothesis is confirmed in all countries, except for Spain, where at best, it is only weakly supported by the data. In terms of overall surplus, German subjects perform on average the best, while Spanish perform the worst. 2In the trust game, a player can send a positive amount to another player. In the second stage, the amount is tripled, and the second player can send back a positive amount to the first player. 3There are also a number of trust game studies comparing behavior between a pair of countries (e.g., [23–25]), but as these studies only include one of our samples of countries, we refrain from individually reporting their results. 4Other studies that compare trust in Japan and the USA include survey evidence (e.g., [28]) and the findings from the one-shot prisoners’ dilemma game by [29]. These studies find that Americans have a higher level of general trust than Japanese, but these findings may stem from differences in beliefs about the nature of social relationships rather than from differences in social preferences. 5There is evidence that cooperation is sensitive to the particular framing (see [34] and the references therein). On the other hand, Fehr et al. [35] show, in a gift-exchange experiment, that formation in terms of “seller-buyer” instead of “firm-worker” does not matter much. Games 2015,6476 When the relationship between a firm and a worker is repeated (fixed matching treatments), we observe higher wages in all countries, except for Japan, and higher effort levels in all countries. This leads to higher surplus in repeated relationships compared to random matching treatments in all countries. German subjects also perform better than those of the other countries in terms of both effort and overall surplus in the repeated relationships. The paper is organized as follows: In the next section, we explain the experimental design and procedure used in our experiment. In Section 3, we present the results. In Section 4, we compare our results to similar gift-exchange experiments conducted in different countries. Finally, in Section 5, we summarize and conclude. 2. Experimental Design and Procedure We use the bilateral gift-exchange (BGE) game initially used by [5,6,36] to compare the performance of undergraduate students from five high-income OECD countries: Germany, Israel, Japan, Spain and the USA. At the beginning of the game, subjects are randomly assigned the roles of “firms” and “workers” (they retain these roles throughout the experiment). The experiment lasts 10 rounds. In each round, each firm is matched with one worker. At the beginning of each round, each firm receives an endowment of 120 ECU (“experimental currency units”). The firm, moving first, offers a wage (w) to the worker (between 20 and 120 ECU). Then, the worker chooses whether to accept or reject the offer. If the worker rejects, both the worker and the firm receive a payoff of 0. If the worker accepts the offer, he/she has to choose an effort level (e) from a finite grid between 0.1 and 1.0. Selecting an effort level above the minimum level is costly, as displayed in Table 1. Table 1. Effort levels and effort costs. Effort Level (e)0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Cost per effort level (C(e)) 0 1 2 4 6 8 10 12 15 18 Additionally, if a worker accepts the offer, he or she has to pay a fixed cost of 20 ECU, which in the instructions is labeled as a travel cost. At the end of each round, the payoff is calculated. If a worker accepts the offer, the firm’s payoff for the actual round is determined by: ΠF i(wi, ej) = (120 −wi)ej(1) and the worker’s payoff is given by: ΠW j(wi, ej) = wi−20 −C(ej)(2) where widenotes the wage offer of firm i,ejdenotes the effort level of the corresponding worker jand C(ej)is the cost of worker j’s effort. At the end of the experiment, subjects earn their accumulated payoffs from the 10 rounds. We chose these particular design parameters (i.e., cost and payoff functions) because they have been used in several Games 2015,6477 previous gift-exchange studies conducted in Austria, France, Hungary, Malaysia, Portugal and the USA. In Section 4, we discuss the findings of these experiments. In the static subgame perfect equilibrium (SPE) of this game under standard homo economicus preferences, the firms offer a wage of 21 (or 20) units, anticipating that workers will choose the lowest positive effort level, i.e.,e= 0.1. The resulting payoffs are 9.9 (or 10) ECU to the firm and 1 (or 0) ECU to the worker. An alternative outcome is predicted by the “efficiency wage hypothesis,” that workers reciprocate with respect to a high wage offer with high effort and that firms anticipate this reciprocity. This more optimistic outcome is also predicted by the inequity aversion model [21]. According to this model, a worker’s utility depends positively on his/her payoff, but negatively on the difference between his/her payoff and the payoff of the firm. If such workers are offered a sufficiently high wage, they would choose a positive effort that reduces the difference in payoff between themselves and the firm. Although this aversion to payoff inequality is not a direct measure of reciprocity, it can be thought of as a proxy for it. In each country, we conducted both random and fixed matching treatments. Random matching (RM) represents a sequence of one-shot interactions between a firm and a worker, whereas fixed matching (FM) implies a repeated relationship. The subgame perfect equilibrium is the same in both random and fixed matching. However, due to the possibility to build up reputation, repeated interactions between firms and workers may yield different results than a sequence of one-shot interactions, since a selfish worker would reciprocate in early rounds if he/she believes that it will pay off in terms of future wage offers (see [5]). We therefore expect to observe higher wage offers and higher reciprocity in the FM treatments than in the RM treatments. A total of 428 undergraduate students (mostly economics or business majors) participated in our experiment, which was programmed and conducted using the z-Tree experimental software [37]. The experiment was conducted at the University of Kiel (Germany), University Jaume I, Castellón de la Plana (Spain), the Max Stern Yezreel Valley College, Emek Yezreel (Israel), California Polytechnic State University at San Luis Obispo (USA) and Kyoto Sangyo University (Japan). Upon entering the computer lab, the subjects were given 10 min to read the instructions, which included a set of four questions to test whether they understood the experiment.6Then, we read the instructions aloud and showed how to calculate the answers to the four questions from the instructions. An experimenter from Germany was present during each of the other countries’ sessions to ensure that the same protocol was followed in the different countries.7The instructions were translated from English to the relevant language and then back to English by two different persons. The exchange rate between ECU and the local currencies was calculated to have a similar purchasing power in each country. 3. Results Table 2provides the first glance at the performance of the different subject pools, while Figure 1 illustrates the mean (and standard errors) of wage offers and effort levels in each treatment. For the 6Instructions were adapted from [5]. If subjects gave at least one incorrect answer, the experimenters individually explained to them how the payoffs were determined. 7Two of the authors located in Germany were present in all sessions conducted in Kiel, Germany. One of these authors traveled to Spain, Israel and Japan, and the other one to the USA. Games 2015,6478 non-parametric analysis, we exclude the first and last round (due to possible “start-game” effects stemming from unfamiliarity with the task in the first round and “end-game” effects in the last round of the fixed-matching treatments).8As an observation for both the random and fixed matching treatment, we are using the average performance per worker over Rounds 2–9 (i.e., in both the RM and FM treatments, the number of independent observations is equal to number of firms or workers). The procedure is explained below. Table 2. Average outcomes in the different treatments (Rounds 2–9). RM, random matching; FM, fixed matching. Treatment All Offers Accepted Offers Rejected Offers (Number of Subjects)wJoint-Πw e Π-ratio wRejections Germany RM (36) 61.37 53.97 62.07 0.31 3.81 28.33 0.02 Germany FM (36) 67.93 66.09 67.97 0.63 1.73 67.14 0.04 Spain RM (54) 49.15 37.04 50.40 0.14 5.06 27.83 0.05 Spain FM (52) 60.57 51.40 63.67 0.32 4.00 34.36 0.10 Israel RM (34) 59.66 50.44 60.63 0.26 4.32 27.50 0.02 Israel FM (36) 67.98 58.54 70.49 0.45 5.25 44.71 0.09 USA RM (42) 53.01 42.28 55.09 0.23 4.31 30.07 0.08 USA FM (42) 62.21 54.77 64.10 0.37 3.21 35.27 0.06 Japan RM (50) 55.84 47.80 56.66 0.26 4.28 23.60 0.02 Japan FM (46) 57.67 56.61 58.70 0.49 1.69 27.33 0.03 The symbols “w” and “e” indicate average wage and effort, respectively. “Joint-Π” indicates the surplus from a relationship. It is equal to ΠW+ ΠF. “Π-ratio” is equal to ΠW/ΠF, where ΠW(ΠF) denotes the worker’s (firm’s) payoff. In calculating the “Π-ratio”, we omitted three observations where ΠF= 0, but not due to a rejection of offer (two cases in the Spain FM treatment and one case in the Israel RM treatment). 3.1. Behavior in a Sequence of One-Shot Interactions We first examine the results in the RM treatments, in which workers are matched with different firms in every round, thus leaving no opportunity for building up reputation or applying dynamic strategies. We start by using a robust rank order test to pairwise compare across countries. The p-values of these comparisons are shown in Table B1 in the Appendix. When pairwise comparing wage offers across countries, we find that German subjects adopting the roles of firms offer the highest wages (significantly higher than their counterparts from Spain, the USA and Japan). Spanish subjects representing firms offer significantly lower wages than those from the other countries (except for the USA). In addition, we observe that hardly any firm offers the SPE wage of 20 or 21 (less than 2% in any of the subject pools). When such a wage offer is observed, the worker either rejects it or selects the minimum effort level.9 8By and large, we do not observe a time trend when including Rounds 2–9. More precisely, we regressed the variables “wage offer” or “effort level” on “round” and on “round square” in each of the treatments. The only significant variable at p≤0.05 is in the Spain RM treatment, where “effort level” is negatively affected by the “round.” 9We count 14 cases in Rounds 2–9 with SPE wage offers of 20 or 21 ECU. In 10 cases, the workers rejected the offers, and in four cases, they chose the minimum effort. Games 2015,6479 (a) Wage (random matching) (b) Wage (fixed matching) (c) Effort (random matching) (d) Effort (fixed matching) Figure 1. Mean wage and effort levels (with standard errors) for accepted offers in the random- and fixed-matching treatment over Rounds 2–9. Next, we want to learn how wage offers affect rejection and effort levels. For this purpose, we use the Hurdle model specification (see [38]) to capture the worker’s two-stage decision: whether or not to reject the wage offer (by a logit model) and, if not rejected, which effort level to choose (by a truncated linear regression).10 Table 3indicates that, first, rejections depend (significantly) negatively on the wage offers for all subject pools, but we observe no significant difference in the “propensity to reject” across countries. Second, we observe that in all countries, effort levels depend (significantly) positively on the wage offers.11 We find no difference in reciprocity (effort levels per wage offer) across countries, except for a lower reciprocity in Spain (the significance level is p= 0.059). This means that for an average wage offer of 60 ECU (in Round 5), the average effort in both Germany and the USA is equal to 0.23, but in Spain, it is only 0.13. For an average wage offer of 80 ECU, the average efforts in Germany and the USA are 0.35 and 0.33, but only 0.15 in Spain. 10 In a public good game, the decision whether or not to contribute is implicit in the amount contributed to the public good. By contrast, in our gift-exchange game, the decision whether or not to reject an offer is explicit. Thus, hurdle models are especially suitable for the gift-exchange game. 11 Using a joint-significance chi-squared test, we find that wage coefficients (i.e., (Wage) + (Wage ×Country)) are significantly different from zero (p < 0.01 in all countries). Games 2015,6480 Table 3. Hurdle model estimation for the random-matching treatments. Rejection Effort Level Germany 3.677 (2.386) −0.063 (0.130) Spain −0.031 (94.991) 0.144 (0.108) Israel −1.679 (3.240) −0.001 (0.175) Japan 1.827 (8.048) 0.034 (0.108) Wage −0.151 *** (0.051) 0.005 *** (0.002) Wage ×Germany −0.130 (0.090) 0.001 (0.003) Wage ×Spain −0.021 (3.804) −0.004 * (0.002) Wage ×Israel 0.036 (0.107) −0.000 (0.004) Wage ×Japan −0.121 (0.393) −0.000 (0.002) Round dummies (2–10) yes yes Constant 4.00 ** (1.439) −0.017 (0.110) Observations 1080 1030 Wald chi2(k−1) 314.94 *** 9223.03 *** Pseudo R2/R20.37 0.29 The rejection decision is estimated using a logit specification. The effort level decision is estimated using a truncated linear regression. Standard errors are in parentheses. Both specifications are estimated using bootstrapped clustered robust standard error (by session) with USA as the benchmark country (1000 replications per specification, 369 and 535 of them were completed in the logit and linear regression, respectively). Finally, *, ** and *** denote equal to or less than the 10%, 5% and 1% significance levels, respectively. Although workers reciprocate with higher effort when receiving higher wages, they do not attempt to split payoffs evenly. In fact, for no pair of matched subjects did the firm earn a positive payoff equal to the worker’s payoff. For all matched pairs, workers’ payoffs are found to be significantly larger than the firms’ payoffs.12 Even though on average the payoff ratios range between 3.81 (Germany) and 5.06 (Spain), we find no statistical difference between the subject pools.13 Finally, in terms of surplus (measured by the joint payoffs of the firm and the worker), we find that Germans perform better than Spanish and U.S. Americans. Spanish subjects perform worse than subjects from all other countries, except for U.S. Americans. Our first result can now be formulated as follows: Result 1 (random matching): In the treatments representing a sequence of one-shot relationships, we find that: (i) German subjects offer higher wages than the other subject pools (except for Israelis), while Spanish offer lower wages than the other pools (except for U.S. Americans); (ii) rejections and effort levels (per given wage offer) are not different across countries, except for Spanish subjects, who reciprocate with less effort (per wage) than their counterparts in the other countries; (iii) payoff inequality between workers and firms is not different across countries; and (iv) as to surplus, German subjects outperform Spanish and U.S. American subjects, while Spanish subjects fall behind all of the other countries’ subjects, except for the U.S. Americans. 12 We used a median test to study if the payoff ratio is equal to one. We reject this hypotheses in all treatment at p < 0.01. 13 Notably, the results suggest that in this game, the workers have more power than firms. This feature deviates from most labor markets with an excess supply of workers. Games 2015,6487 game experiment with subjects from Morocco, France and Spain. These authors observe that Spanish subjects are significantly less trustworthy than subjects from Morocco or France.21 Further, in contrast to what could be conjectured from the ultimatum game study by [19], we do not find higher wage offers by American subjects than by Israeli and Japanese subjects, and rejection rates are also not lower in Israel and Japan than in the USA. In line with [26] and at odds with [27,29], we do not find considerable differences in trust (i.e., wage offers) and reciprocity (i.e., effort levels) between Americans and Japanese. In short, we find that, while some prior results from games involving reciprocity and trust are confirmed by our experiments, in other cases, the results do not extend to the gift-exchange setting. Our results demonstrate the value of conducting further cross-country studies that provide evidence on the consistency and robustness of previous findings. Acknowledgments Financial assistance was provided by Universiti Sains Malaysia (1001/PSosial/816117). We would like to thank Avi Weiss and Gianluca Grimalda for useful comments and remarks. Finally, we would like to thank the editor and three anonymous referees for their comments and suggestions. Author Contributions Israel Waichman, Ch’ng Kean Siang, and Till Requate designed the study. Israel Waichman, Ch’ng Kean Siang, Till Requate, Aric P. Shafran, Eva Camacho-Cuena, Yoshio Iida, and Shosh Shahrabani conducted the study. Israel Waichman and Aric P. Shafran analyzed the data. Israel Waichman, Till Requate, and Aric P. Shafran wrote the paper. Conflicts of Interest The authors declare no conflict of interest. A. Appendix File: Cross-Country Socio-Economic Indicators In this section, we report on several socio-economic indicators and formulate how they are expected to impact behavior in a bilateral gift-exchange game study. The indicators are displayed in Table A1 (in addition to the findings of the of the trust game meta-analysis by [31]). We start by inspecting two cross-nation indicators suggested by [46]. These authors define the power distance index (PDI) as “the extent to which the less powerful members of the institutions and organizations within a country expect and accept that power is distributed unequally” ([46] p. 61). In particular, we expect higher PDI to be related to lower rejection rates and high effort levels. A second cross-nation dimension of possible relevance is the long-term orientation index (LTOI), defined as “fostering of virtues oriented towards future rewards—in particular, perseverance and 21 Yet, in a study of gift-exchange markets, Brandts and Charness [51] confirm the efficiency wage hypothesis using student subjects from Barcelona. Games 2015,6488 thrift”˜ ([46] p. 239).22 Thus, we expect higher LTOI to be positively related to high wage offers (or high effort levels) in the repeated treatments. Table A1. Socio-economic indicators. Trust Game National Dimensions WVS WJP Sent Sent back PDI LTOI Trust NCC RoLaw Our sample Germany 0.51 0.44 35 83 0.33 7.80 0.81 Spain - - 57 48 0.19 7.67 0.68 Israel 0.59 0.45 13 38 - - - USA 0.51 0.34 40 26 0.39 7.69 0.73 Japan 0.58 0.32 54 88 0.36 8.29 0.78 Previous experiments Austria 0.62 0.38 11 60 - - 0.82 France 0.43 0.33 68 63 0.18 7.07 0.74 Hungary 0.51 0.40 46 58 0.28 7.84 0.58 Malaysia - - 104 41 0.08 6.23 0.57 Portugal - - 63 30 - - 0.70 In the trust game, “sent” and “sent back” are the average amount sent (in the first stage) and sent back (in the second stage) from the respective available amounts. PDI stands for “power distance index”, and LTOI stands for “long-term orientation index” [46]. “Trust” measures the percentage of people responding to the item V23 in Wave 5 of the World Value Survey (WVS) in 2005–2009 by “most people can be trusted.” The last two rows are following [16]: “NCC” denotes “norms of civic cooperation.” It is the (rescaled) average of Items V198–V200 in Wave 5 of the WVS. “RoLaw” denotes the Rule of Law Index developed by the World Justice Project (we use the latest values from 2015). Finally, “-” indicates those cases where values are not reported. A key notion as to why subjects offer high wages in a gift-exchange game is the trust a player has in receiving a “gift” (high effort) back. To this end, we use Item V23 of [52] (Wave 5: 2005–2009), which measures the percentage of those who responded with “most people can be trusted” to the following question: “Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?” We expect trust to be positively correlated with high wage offers. Finally, following [16], we include two additional indicators, “norms of civic cooperation” (NCC) and “Rule of Law Index” (RoLaw).23 NCC is defined by [45] as a measure for the efficiency for which a society is solving collective action problems. We follow [16], measuring NCC as the average of three World Value Survey items where participants are asked whether a particular behavior can be justified or not. The statements are (Item V198) “Claiming government benefits to which you are not entitled”, (V199) “Avoiding a fare on public transport”and (V200) “Cheating on taxes if you have a 22 The author (Minkov) used items from the World Value Survey (see below) satisfying three conditions (“thrift as a desirable trait for children”, “national pride”and “importance of service to others”). The first and third conditions seems to be highly relevant to our game, while the second trait measures “self-enhancement”. 23 Herrmann et al. [16] conducted a public good game with punishment in 16 locations, finding that both NCC and RoLaw are negatively and significantly correlated with anti-social punishment (punishment of prosocial cooperators), and NCC is positively correlated with the punishment of free riders. Games 2015,6489 chance.” The higher the average, the stronger are civic norms in the respective country.24 RoLaw [53] captures the perception of how the rule of law is enforced within the country. This in particular refers to constraints on government power, the absence of corruption, open government, fundamental rights, order and security, regulatory enforcement, civil justice, criminal justice and informal justice. We expect that these two indicators (high NCC and RoLaw) are related to high wage offers and high effort levels. As already pointed out in Section 4, when using a Spearman correlation to link these socio-economic indicators to differences in behavior across countries we do not observe obvious correlations in the random matching treatments. However, the LTOI and NCC indicators are possibly correlated with high effort levels in the fixed matching treatments. Nevertheless, as the number of studies are small, these variables should be further explored in cross-country experiments and in meta-analyses of experiments. B. Appendix File: Additional Tables and Figures Table B1. Statistical differences across random-matching treatments. Outcome Average Germany Spain Israel USA Japan W(accepted offers) 56.66 Japan 0.09 0.09 0.27 0.63 - e(accepted) 0.26 0.17 0.00 0.52 0.16 - Π-ratio (accepted) 4.28 0.84 0.43 0.91 0.73 - Joint-Π(all offers) 47.80 0.18 0.01 0.54 0.17 - W(accepted offers) 55.09 USA 0.07 0.38 0.16 - - e(accepted) 0.23 0.00 0.00 0.65 - - Π-ratio (accepted) 4.31 0.49 0.63 0.98 - - Joint-Π(all offers) 42.28 0.01 0.32 0.21 - - W(accepted offers) 60.63 Israel 0.41 0.00 - - - e(accepted) 0.26 0.12 0.01 - - - Π-ratio (accepted) 4.32 0.95 0.53 - - - Joint-Π(all offers) 50.44 0.21 0.00 - - - W(accepted offers) 50.40 Spain 0.00 - - - - e(accepted) 0.14 0.00 - - - - Π-ratio (accepted) 5.06 0.29 - - - - Joint-Π(all offers) 37.04 0.00 - - - - W(accepted offers) 62.07 Germany - - - - - e(accepted) 0.31 - - - - - Π-ratio (accepted) 3.81 - - - - - Joint-Π(all offers) 53.97 - - - - - p-values of pairwise comparisons of different outcomes, using a two-sided robust rank order test, in the different fixed-matching treatments. Unit of observation: average outcome per worker (averaged over Rounds 2–9). “Π-ratio” includes only cases where the firm’s profit is larger than 0. Finally, “Average” denotes the average value of the outcome of the comparison. For instance, the average wage offer in Japan is equal to 56.66 experimental currency units (ECU) (see Table 2). 24 We follow [16,45], scaling the answers from “always justifiable (1)” to “never justifiable (10),”instead of the opposite. Games 2015,6490 Table B2. Statistical differences across fixed-matching treatments. Outcome Average Germany Spain Israel USA Japan W(accepted offers) 58.70 Japan 0.00 0.41 0.00 0.24 - e(accepted) 0.49 0.06 0.00 0.42 0.13 - Π-ratio (accepted) 1.69 0.72 0.00 0.00 0.00 - Joint-Π(all offers) 56.61 0.06 0.24 0.70 0.57 - W(accepted offers) 64.10 USA 0.09 0.73 0.09 - - e(accepted) 0.37 0.00 0.30 0.46 - - Π-ratio (accepted) 3.21 0.00 0.83 0.80 - - Joint-Π(all offers) 54.77 0.00 0.42 0.31 - - W(accepted offers) 70.47 Israel 0.67 0.19 - - - e(accepted) 0.45 0.00 0.10 - - - Π-ratio (accepted) 5.25 0.00 0.90 - - - Joint-Π(all offers) 58.54 0.22 0.13 - - - W(accepted offers) 63.67 Spain 0.22 - - - - e(accepted) 0.32 0.00 - - - - Π-ratio (accepted) 4.00 0.00 - - - - Joint-Π(all offers) 51.40 0.00 - - - - W(accepted offers) 67.97 Germany - - - - - e(accepted) 0.63 - - - - - Π-ratio (accepted) 1.73 - - - - - Joint-Π(all offers) 66.09 - - - - - p-values of pairwise comparisons of different outcomes, using a two-sided robust rank order test, in the different fixed-matching treatments. Unit of observation: average outcome per worker (averaged over Rounds 2–9). “Π-ratio” includes only cases where the firm’s profit is larger than 0. Finally, “Average” denotes the average outcome of comparison. For instance, the average wage offer in Japan is equal to 58.70 ECU (see Table 2). Table B3. The impact of repetition within each country. Outcome Germany Spain Israel USA Japan W(accepted offers) 0.06 0.00 0.00 0.07 0.50 e(accepted) 0.00 0.00 0.00 0.00 0.00 Π-ratio (accepted) 0.00 0.18 0.63 0.19 0.00 Joint-Π(all offers) 0.00 0.00 0.05 0.00 0.06 p-values of pairwise comparisons of different outcomes, using a two-sided robust rank order test. Unit of observation: average outcome per worker (averaged over Rounds 2–9). Games 2015,6491 (a) Random-matching treatments (b) Fixed-matching treatments Figure B1. Evolution of average wages in the random- and fixed-matching treatments. (a) Random-matching treatments (b) Fixed-matching treatments Figure B2. 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