ON THE RELEVANCE AND COMPOSITION OF GIFTS WITHIN THE FIRM: EVIDENCE FROM FIELD EXPERIMENTS

We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural behavioral model that identifies workers' optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labor market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers' outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labor markets by up to 10% on average and by up to 17% for certain types of workers.