Accepted Manuscript

Title: Reciprocity and Resistance to Change: An Experimental

Study

Author: Jan Philipp Krügel Stefan Traub

PII: S0167-2681(17)30367-0
DOI: https://doi.org/doi:10.1016/j.jebo.2017.12.017
Reference: JEBO 4231

To appear in: Journal of Economic Behavior & Organization

Received date: 24-3-2017

Revised date: 7-11-2017
Accepted date: 21-12-2017

Please cite this article as: Jan Philipp Krddotugel, Stefan Traub, Reciprocity and
Resistance to Change: An Experimental Study, <![CDATA[Journal of Economic
Behavior and Organization]]> (2018), https://doi.org/10.1016/j.jebo.2017.12.017

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*Highlights (for review)

We experimentally study the circumstances under which employees resist changes.

We hypothesize that reciprocity towards the employer increases change acceptance.

Subjects play a combination of a gift exchange and a threshold contribution game.

We find that uncertainty does not necessarily lead to resistance to change.

Employer is able to trigger reciprocal behavior in employees by offering a fair wage.

t
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Page 1 of 45
 Reciprocity and Resistance to Change:
An Experimental Study

t
Jan Philipp Krügela∗ , Stefan Trauba

ip
a Department of Economics, Helmut-Schmidt-University, Hamburg, Germany &

cr
FOR2104

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November 2017

an
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ed

Abstract Many uncertain organizational changes fail because of resis-

tance by employees. This paper studies the circumstances under which ac-
ceptance to change occurs. We propose that reciprocity towards the employer
pt

helps to increase change approval. Subjects in our experiment play a combi-

nation of a gift exchange and a threshold contribution game. In each group,
one employer chooses a wage and then five employees decide on their effort.
ce

A ‘reform’ is adopted if the employees exert at least a minimum threshold

of effort. The reform is efficiency enhancing but also raises inequality among
employees. We find that uncertainty over payoffs does not necessarily lead
Ac

to resistance. The likelihood of reform approval is especially high if the em-

ployer is able to trigger reciprocal behavior in employees by offering a fair
wage, which confirms our hypothesis.

Keywords: Resistance to Change, Reciprocity, Gift Exchange, Threshold

Contribution Game, Experiment

JEL classification: J30, L20, C91

∗
Corresponding author. Department of Economics, Helmut-Schmidt-University, Hol-
stenhofweg 85, 22043 Hamburg, Germany, kruegel@hsu-hh.de.

Page 2 of 45
1 Introduction
Organizational change is often met with ‘resistance to change’ by employ-
ees (see Coch and French, 1948; Kotter and Schlesinger, 1979; Oreg, 2003,
among others). This can be problem because many change initiatives fail
without the active participation of part of the personnel (Kotter, 1996).1 In

t
ip
fact, a large number of organizational changes cannot be implemented suc-
cessfully.2 Consequently, several suggestions on how to increase acceptance
to change have been put forward. It is well-established that reducing the

cr
uncertainty of changes with clarity and good communication is crucial for
successful implementation (Kotter, 1995). Many changes, however, may still
have consequences that employees perceive as unpredictable even with high

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transparency from management. Cobb et al. (1995) and Folger and Skar-
licki (1999) point out that employers should create a positive environment
and establish a reputation of fairness: if employees feel like they are treated
an
fairly, they will develop behaviors necessary for change.
In the economic literature, many papers have provided evidence that
such fairness considerations may indeed create incentives for reciprocation.
M
If a person is given a gift, that person is often willing to reciprocate (e.g.
Gouldner, 1960; Berg et al., 1995). In the field of labor relations, Akerlof
(1982) and Akerlof and Yellen (1990) argue that wages which are above a
certain reference point and are thus considered ‘fair’ may lead to increased
ed

effort by employees. The results of several experiments, starting with the

‘gift exchange game’ by Fehr et al. (1993), suggest that this relation holds
true in the laboratory.
pt

The aim of our paper is to investigate the conditions for successful im-
plementation of organizational changes. In particular, we examine whether
reciprocity towards the employer helps to increase change-acceptance, es-
ce

pecially if a change entails uncertain outcomes for employees. In a newly

developed theoretical model, we study a single firm in which a ‘reform’ is
supposed to be implemented. Following Fernandez and Rodrik (1991), the
reform is efficiency enhancing but it also increases inequality among employ-
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ees. There is uncertainty as to which of the employees will gain and lose from
reform. We assume that the reform can only be passed if the employees ac-
1
Employees are responsible for carrying out changes in strategy or operation on a
daily basis. The management may also renounce proposed changes if costs of (potential)
resistance are too high compared to the benefits (Jacobs et al., 2013).
2
Kotter (1995, 2008) estimates that up to 70% of change efforts in organizations fail
(see also Aiken and Keller, 2009; Jørgensen et al., 2009). A major reason for failure is
resistance to change (Lawrence, 1954; Maurer, 1996; Waldersee and Griffiths, 1997; Bovey
and Hede, 2001).

Page 3 of 45
tively participate in implementation by providing a minimum level of effort.
The choice situation creates a coordination game with multiple equilibria
where employees ‘vote’ on changes by choosing their effort. Since high effort
is assumed to be costly, there is an incentive to free ride on the contribution
of others. Given the evidence for resistance under uncertainty, we hypothe-

t
size that employees reject the change if they act as payoff maximizers with

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self-regarding preferences. However, employers might be able to increase im-
plementation rates by offering a ‘fair’ wage and triggering reciprocal behavior
in employees.

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The model is tested with a laboratory experiment. We combine a thresh-
old contribution game with an element of gift exchange. In the basic setup,

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each group consists of one employer and five employees (the personnel). First,
the employer chooses a wage (low, high). Then, the employees simultane-
ously decide on their effort levels (low, high). If a qualified majority ‘votes’
for the more costly high effort option, the reform is put into place. In order
an
to isolate the effects of reciprocity on uncertain changes, employees cannot
communicate or otherwise coordinate themselves. To the best of our knowl-
edge, this is the first paper to incorporate a third party in a coordination
M
game and test for the effect of reciprocity on equilibrium selection.
The main results of the experiment can partially confirm our expectations.
Contrary to our first hypothesis, there are always some employees who do
not resist to change but try to coordinate on a reform-equilibrium, which
ed

leads to several successful reforms. However, both the effort of employees as

well as the share of approved reforms are significantly higher if the employer
offers a high wage, which suggests that the employer is able to trigger strong
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reciprocal behavior in employees by selecting a wage which is perceived as

fair. This is in line with our second hypothesis.
The remainder of the paper is organized as follows. Section 2 provides a
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short literature review. In Section 3 we introduce the theoretical framework

of our study and derive working hypotheses. Section 4 explains the details of
the experimental design. Section 5 presents the results. Concluding remarks
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are given in Section 6.

2 Related Literature
Resistance to change has been widely studied, beginning with research by
Lewin (1947), Coch and French (1948) and Lawrence (1954). These authors
identify a tendency in people to prefer the familiar rather than to accept
changes and the unknown. Many scholars in change management have con-
centrated on ways to implement changes, introducing several actions to ad-

Page 4 of 45
dress resistance to change (Kotter and Schlesinger, 1979) and to increase
the chance of changes being successful (Kotter, 1996; Luecke, 2003). The
causes for resistance are twofold. One the one hand, it is pointed out that
procedural reasons – lack of communication, clarity, leadership – may result
in resistance by employees (e.g. Mullins, 2016). On the other hand there

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are psychological reasons, which may include selective perception, habits or

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feelings of insecurity. The departure from the status quo is often accom-
panied by uncertainty, which may be perceived as threatening (Kotter and
Schlesinger, 1979; Oreg, 2003).3

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In the field of political economy, Fernandez and Rodrik (1991) analyze
why public reform initiatives frequently fail to be adopted. The authors show

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that if a reform increases inequality among the population, the majority of
citizens may favor the status quo whenever winners and losers of reform are
not clearly identified (‘status quo bias’). Importantly, this may be the case
even if a reform increases welfare and is efficiency-enhancing.4 Regarding this
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paper, the research by Fernandez and Rodrik (1991) implies that employees
could resist changes based on uncertainty even if a change is beneficiary to
them in expectation.
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The model by Fernandez and Rodrik (1991) has been tested experi-
mentally. In Paetzel et al. (2014), there are five players who can vote
on an efficiency-enhancing but inequality-increasing reform that involves
individual-specific uncertainty. The authors show that social preferences in
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subjects mitigate the hypothesized status quo bias. Cason and Mui (2005)
expand the design of Fernandez and Rodrik (1991) by making voter par-
ticipation costly. Drawing on the participation game framework of Palfrey
pt

and Rosenthal (1983), they demonstrate that uncertainty still reduces the
incidence of reform in such a setting.
In our model, there is a motivation to resist changes because supporting
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a change is costlier than rejecting it. As opposed to Cason and Mui (2005),
costs do not depend on whether a subject votes at all but rather on how she
decides. Along with the introduction of a threshold, this choice situation
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creates a threshold contribution game, resulting in a coordination problem

for subjects. There is a large body of related literature on threshold public
good games (e.g. Palfrey and Rosenthal, 1984; Offerman et al., 1996; Croson
3
Resistance may also occur when a real threat exists or a negative change is presented.
On a similar note, recent studies suggest that resistance should also be seen in a positive
light because it could be a helpful response to procedures that may not be in the best
interest of the organization (Waddell and Sohal, 1998; Ford et al., 2008; Piderit, 2000).
For more literature and a comprehensive overview on the topic see Krügel (in press).
4
In the literature, a reform is called ‘efficiency-enhancing’ if the Kaldor-Hicks criterion
is fulfilled.

Page 5 of 45
and Marks, 2000). As shown by van de Kragt et al. (1983) and Palfrey
and Rosenthal (1991), ‘cheap talk’ or signaling might solve the coordination
problem, especially in settings where the potential gains from coordinated
behavior are substantial. Likewise, sequential decision making, refunds, and
continuous contributions are helpful to reach threshold equilibria (Erev and

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Rapoport, 1990; Isaac et al., 1989; Cadsby and Maynes, 1999).

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The impact of reciprocity on equilibrium selection in coordination games,
however, has to our knowledge never been tested. We add to the experimental
literature by introducing a third party (the employer) and making the game

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sequential. This follows other experimental studies on reciprocity in labor
relations, especially the gift exchange game developed by Fehr et al. (1993).

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There is extensive evidence that employees respond to higher wages with
more effort due to positive reciprocity (see also Fehr et al., 1997; Fehr et
al., 1998; Gächter and Falk, 2002; Brown et al., 2004; Maximiano et al.,
2007). These studies confirm the efficiency wage model by Akerlof (1982)
and Akerlof and Yellen (1990).5 an
We contribute to the literature on resistance to change by incorporating
in our analysis these different ideas that are not usually cited when discussing
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resistance. Our main contribution is that we offer a better understanding as
to the conditions under which changes can be successfully adopted.
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3 Theory
In this section, we introduce the theoretical framework of our study. First,
we develop a model for employees with self-regarding preferences. The model
pt

uses elements inspired by efficiency wage models such as Shapiro and Stiglitz
(1984), as well as Akerlof (1982) and Akerlof and Yellen (1990). In the first
ce

part, we do not analyze the role of the employer any further, instead we
assume that employees receive fixed equal wages from the firm. Afterwards,
we derive two types of Nash equilibria. In the third subsection, we introduce
the employer and incorporate reciprocal altruism in the utility function of
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employees. We base our design on Charness and Haruvy’s (2002) application

of Rabin’s (1993) model to gift exchange games. We develop our two working
hypotheses based on these considerations. Finally, we discuss the impact of
alternative preference specifications on the outcome of the game.
5
As shown by Fischbacher and Schudy (2014), reciprocity might also lead to increased
failure rates of reforms. This is the case if legislators, who decide on reform, trust that
they can trade votes with each other and thus pass their favorite bill instead of the whole
reform.

Page 6 of 45
3.1 Model with Self-Regarding Preferences
Consider a single firm which employs a personnel of j = 1, . . . , n identical
employees. The management of the firm wishes to implement a reform,
which we assume to be beneficial in expectation to both the firm as well the
employees. For now, we concentrate on the employees and assume that they

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receive fixed equal wages w from the firm.

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The employees expend nonnegative effort ej ∈ {0, E}, where 0 is ‘low ef-
fort’ and E ‘high effort’.6 Preferences are self-regarding and utility is assumed

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to be additively separable. Then, we can describe the utility of employees as
follows:

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0 w if ej = 0
Uj = w − ej = (1)
w − E if ej = E.
As long as high effort is more costly than low effort (E > 0), the optimum
an
effort choice is zero. While equation (1) refers to the status quo, utility
is altered by an organizational reform if it is adopted. We introduce two
additional parameters, 0 < s < 1 and b > 0. The first parameter denotes
the probability that the employee is ‘laid off’ in the course of the reform and
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receives a payoff of 0. The second parameter denotes a wage benefit which
is only paid if the reform is adopted. We assume that this additional payoff
results from a productivity gain for the firm which is then passed on to the
ed

employees. Moreover, we presuppose that employees first commit themselves

to low or high effort according to the reform’s expected utility. Afterwards,
they learn their employment status. Finally, if they have not been laid off,
they expend effort and receive their wage including the benefit. Hence, an
pt

employee’s after-reform expected utility is given by

ce


(1 − s)(w + b) if ej = 0
UjR = (1 − s)(w + b − ej ) = (2)
(1 − s)(w + b − E) if ej = E.
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Several points are noteworthy about (2). s > 0 implies that inequality
increases among the personnel since some employees do not receive a payoff.
It also adds an element of uncertainty to the decision: employees do not
know for certain whether they will be ‘winners’ of reform and receive the
benefit b in addition to w or ‘losers’ who receive a payoff of 0. Note that
being laid off is not dependent on the decision to exert low effort. Hence,
we do not explicitly consider monitoring in this paper, which is in line with
6
A binary effort choice not only simplifies the game but also creates similarities to
voting models. High effort is equivalent to voting in favor of reform whereas low effort is
similar to deciding against reform.

Page 7 of 45
gift exchange experiments.7 The assumption that employees commit to effort
earlier than they actually exert effort is solely used in order to avoid negative
payoffs.
The reform is put in place only if the personnel collectively supplies a
minimum level of effort θ (threshold):

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n

ip
X
ej ≥ θ . (3)
j=1

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This assumption captures the fact that many organizational changes fail
without the active participation of at least a certain minimum of employees.
We fix the threshold at a multiple of high effort, θ = mE. A reform is called

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efficiency-enhancing for the employees if the condition
s
b≥ w+E (4)
1−s
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is met. In words, the wage benefit must at least balance the expected wage
loss due to possibly being laid off after the reform plus the extra effort to be
expended in order to make the reform possible.
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3.2 Equilibria
The following theorem results from additionally assuming 1 < m < n, that
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is, neither can a single employee expend enough effort to meet the threshold
on her own nor is it necessary that the complete personnel expends high
effort.
pt

Theorem 1 In presence of an efficiency enhancing organizational reform,

the game Θ = {n, w, ej ∈ {0, E}, s, b, θ, m} has two types of pure strategy
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Nash equilibria for the personnel:

(a) ej = 0 ∀ employees and
(b) ej = E for m and ej = 0 for n − m employees.
Ac

A proof is given in Appendix 1.8

Which of the two types of Nash equilibria is more likely to occur in the-
ory? There is empirical evidence from threshold public good games that sub-
jects try to coordinate to the threshold equilibrium. However, theoretically
7
ej = 0 could also be understood as the effort level that just fulfills the minimum-effort
required by the rules of the labor contract in order not to be laid off.
8
Mixed strategy equilibria depend on the number of employees n, as well as m and the
threshold θ. Therefore, we only derived them for the parametrization that we used in the
experiment (see footnote 24).

Page 8 of 45
there are at least three reasons for believing that the personnel unanimously
chooses low effort and blocks the organizational reform. First, as opposed to
a threshold public goods game, the reform-equilibria are not payoff dominant
(Harsanyi and Selten, 1988) in the strict Pareto sense due to the uncertainty
involved by the possibility of being laid off in the course of the reform. As

t
shown by the literature on resistance to change, there is strong evidence that

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n
employees prefer the status quo over an uncertain reform. Second, the m
equilibria which are characterized by m out of n employees choosing high
effort and n − m employees low effort are asymmetric. The personnel de-

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cides simultaneously and cannot communicate. Hence, reaching one of these
equilibria would require a high degree of coordination. Each employee can

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only speculate about the decisions of the others and the probability of being
pivotal is relatively small. Third, the asymmetric equilibrium involves a free-
rider problem: An employee who chooses low effort can still benefit from an
approved reform without having to bear the costs of high effort. These three
arguments lead to our first hypothesis: an
Hypothesis 1 If subjects have self-regarding preferences, efficiency enhanc-
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ing organizational reforms that involve ex-ante uncertainty about who benefits
and who is laid off are blocked by the personnel.

Let us assume, in contrast to our previous hypothesis, that some employees

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try to coordinate on an asymmetric Nash equilibrium by expending high

effort. The efficiency condition (4) depends on the size of the wage benefit b,
the probability of being laid off s, the wage w and the cost of effort E. Hence,
we hypothesize the likelihood of reform equilibria to increase in the wage
pt

benefit and to decrease in the employer’s wage offer. It should also decrease
in the probability of being laid off due to the reform and the costs of effort,
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but we will not further investigate these two variables in the experiment and
keep them constant.
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3.3 Incorporating Reciprocity

Now, we introduce the employer and incorporate reciprocity in the utility
function of employees. Suppose that before the employees decide to expend
effort, the employer sets a wage w ∈ {wl , wh }, which is the same for all n
employees. wl denotes ‘low wage’ and wh ‘high wage’ with wl < wh . The
model becomes a sequential game, where employees first learn about the
employers’ wage decision and afterwards choose ej . The utility function of
the employer is as follows:

Page 9 of 45
 n

P
 oh nh + ol nl − nw if ej < θ


j=1
Uemp = Pn , (5)
 oh nh + ol nl − (1 − s)nw if ej ≥ θ


j=1

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where nh (nl ) is the number of employees who choose high (low) effort and

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oh (ol ) is the output of an employee exerting high (low) effort (with oh > ol ).
Hence, equation (5) shows the payoffs for both ‘no reform’ and ‘reform’.

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Employers benefit from reform due to a higher productivity of their staff and
because they do not pay out the wages of sn employees who have been laid
off. We assume that oh and ol are net outputs of employees and additional

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profits for the employer can therefore be passed on to employees in form of
the wage benefit b. Equation (5) is similar to the payoff function for the
employer in gift exchange games: In our model as well as in Fehr et al.

whereas a higher wage leads to a lower payoff.9

an
(1993), a higher effort of employees leads to a higher payoff for the employer,

Our approach to modeling reciprocity is a version of Charness and

Haruvy’s (2002) application of Rabin’s (1993) model of reciprocal altruism to
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gift exchange games. In Charness and Haruvy (2002), an employee receives
additional utility if she reciprocates a ‘kind’ wage (as perceived by the em-
ployee) with a ‘kind’ choice of effort. A wage is considered kind if it is higher
than the payoff-maximizing wage, whereas a kind choice of effort increases
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the payoff for the employer compared to the rational choice.

We add a reciprocity parameter rj ∈ {0, R} to our model, assuming that
rj = R if an employee reciprocates a high wage offer with high effort and
pt

rj = 0 otherwise, with R ≥ 0.10 Hence, we consider wl to be the payoff-

maximizing wage for the employer, because – given that employees have
self-regarding preferences – the two types of equilibria exist for both wages
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and wl leads to a higher payoff for the employer. Equation (1) then changes
to
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

 wl if ej = 0 and w = wl
w if ej = 0 and w = wh

h
Uj0 = w − ej + rj = (6)

 wl − E if ej = E and w = wl
wh − E + R if ej = E and w = wh .


9
Since ej = 0 could also be interpreted as the effort that goes beyond the minimum
required by the labor contract, low effort is still valuable for an employer, but less than
high effort.
10
Note that R does not differ individually, because we assume – as before – that all
employees are identical.

Page 10 of 45
 Analogously, the utility in case of reform is

UjR = (1 − s)(w + b − ej + rj )


 (1 − s)(wl + b) if ej = 0 and w = wl
(1 − s)(wh + b) if ej = 0 and w = wh

= (7)

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(1 − s)(wl + b − E) if ej = E and w = wl

ip


(1 − s)(wh + b − E + R) if ej = E and w = wh .


Does the equilibrium analysis change with as compared to without reci-

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procity? Theorem 1 holds if the employer chooses wl since there is no reci-
procity. If the employer instead chooses wh , we have to take R into account.

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There are three possible scenarios which depend on the size of R as compared
to the costs of effort E.
First, consider the case where R < E. Since high effort remains costly
even with an additional amount of reciprocal utility, an employee will choose
an
high effort only if she is pivotal in adopting the reform. Second, let us assume
that R > E. In this case, an employee will choose E, regardless of whether
the reform will be adopted, because choosing high effort does not have a
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‘cost’ anymore but instead increases utility. Hence, there exists only one
equilibrium, which is characterized by all employees choosing ej = E. Third,
suppose that R = E. This condition is equivalent to the case where high
effort is free. An employee will choose high effort if she is pivotal in adopting
ed

the reform, otherwise she is indifferent between ej = E and ej = 0. Since

R = E is an unlikely boundary case which complicates the analysis, it will
not be considered any further.11
pt

Hence, as indicated by efficiency condition (4), where R would have to

be subtracted from the right side of the equation, reciprocity decreases the
expected cost of reform and therefore increases the likelihood of reform. This
ce

leads to our second hypothesis:

Hypothesis 2 If the employer offers a high wage and employees are suffi-
Ac

ciently motivated by reciprocity (R > E), the employees unanimously choose

high effort which leads to the adoption of organizational reforms.

3.4 Alternative Specifications

Apart from reciprocity, preferences and beliefs might depart from those spec-
ified in the model section in the following way:
11
Note that, given R = E, every situation is a Nash equilibrium except for the case
where exactly m − 1 employees choose high effort.

10

Page 11 of 45
Beliefs might matter because employees expend high effort only if they play
a pivotal role in passing the reform.

Efficiency preferences could induce employees to expend high effort be-

cause the organizational reform is efficiency enhancing.

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Inequality aversion might prevent employees from expending high effort

ip
because the organizational reform increases inequality among the per-
sonnel.

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Risk aversion would keep employees from expending high effort because
the reform involves the risk of being laid off.

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We refrain from formally modeling these specifications in order to keep the
model tractable. Instead, we proceed with introducing the experiment.

4 The Experiment
an
The experiment was programmed with z-Tree (Fischbacher, 2007). Subjects
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were recruited via the administration software hroot (Bock et al., 2014).
Apart from the organizational reform task described by the model, partici-
pants also took part in two elicitation tasks for distributional and risk prefer-
ences.12 Afterwards, all participants additionally completed a questionnaire.
ed

The subjects also had to answer five control questions after reading the ex-
periment’s instructions. We begin our description of the experiment with the
main task, the organizational reform.
pt

4.1 Organizational Reform Task

ce

We start by describing the Baseline treatment of the organizational reform

task. The task was repeated for 20 periods. At the beginning of the first
period of each session, four subjects were randomly chosen to be in the
Ac

employer role and twenty subjects were randomly assigned the employee
role.13 The role stayed the same for the entire task. In each period, five
employees were randomly assigned to one employer using a stranger matching
protocol. Hence, all four groups in each session consisted of a single employer
12
The distributional preference task was conducted first, followed by the organizational
reform task and the risk-preference elicitation task. The order of the experimental parts
was chosen this way so the participants could familiarize themselves with the experiment
before completing the reform task. Hence, the distributional preference test, which is easy
to understand, was conducted first.
13
There were two sessions in Baseline, each consisting of 24 subjects.

11

Page 12 of 45
and a personnel of five employees that was changing from round to round.
We repeated the game for 20 periods to allow for learning and changes of
behavior over time. The random matching procedure excluded individual
reputation building.
The game followed the decision problem presented by the model. First,

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the employer had to choose between two wages w ∈ {40, 60} points. 100

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points were later on converted into 3 Euros. Second, the personnel was
informed about w. Third, each employee anonymously and simultaneously
selected her level of effort ej ∈ {0, 20}. Fourth, the reform was decided by a

cr
simple majority ‘vote’, that is, at least m = 3 out of n = 5 employees had
to choose the higher level of effort in order to adopt the reform. Fifth, if

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the reform was adopted, one employee was laid off (s = 0.2) and she did not
receive any payoff from this round. The other employees received their wages
minus effort plus the wage benefit of b = 60. If the reform was not adopted no
employee was laid off and all employees received their wages minus effort.14
an
At the end of each round, employees were asked for their expectations
regarding the number of other group members choosing high effort. This
was done in order to check whether an employee thought that she was pivotal
M
in the voting on the organizational reform. If an employee answered in the
Baseline treatment that she expected exactly two other group members to
expend high effort, she was recorded to believe that she was pivotal.
ed

Table 1: The Employer’s Payoff Scheme in the Baseline Treatment

Employees’ Organizational Payoff by
Effort Choices Reform Outcome Wage Offer
pt

#(ej = 20) #(ej = 0) w = 40 w = 60

0 5 blocked 25 0
ce

1 4 blocked 40 15
2 3 blocked 55 30
3 2 approved 80 60
4 1 approved 95 75
Ac

5 0 approved 110 90

The employer’s payoff is taken from (5) of the model, with outputs of
oh = 30 and ol = 15.15 The complete employer’s payoff scheme is shown
by Table 1. The employer benefited from the organizational reform due
14
In the experimental instructions we used a labor market framing, which follows other
gift exchange experiments such as Fehr et al. (1998) and Maximiano et al. (2007).
15
To guarantee that payoffs were equally high for employers and employees, we used
equation (5) and divided wages by 4 for the employer’s payoff.

12

Page 13 of 45
to increased productivity of the remaining personnel and she also received
higher payoffs if she paid lower wages.

Table 2: Employees’ Payoffs by Treatment

Reform Wage & Effort

t
w = 40 w = 60

ip
ej = 0 ej = 20 ej = 0 ej = 20
Baseline & Random Wages

cr
approved 80 64 96 80
(100;0) (80;0) (120;0) (100;0)
blocked 40 20 60 40

us
Low Wage Benefit
approved 60 44 76 60
(75;0) (55;0) (95;0) (75;0)
blocked

approved
40

—
20
Unanimity
64
an 60

—
40

80
(80;0) (100;0)
M
blocked 40 20 60 40
Notes: For approved reforms the table lists the
expected payoffs before one out of five employees is
ed

laid off (possible outcomes in parentheses below).

The ex-ante payoffs of the employees in the Baseline treatment are

listed in the upper panel of Table 2. After reform approval, each employee j
pt

was faced with a lottery (w + b − ej , 80%; 0, 20%), because one out the five
employees of the group got a payoff of 0 with certainty. Hence, we list both
ce

outcomes as well as their expectation in parentheses below. For example,

the expected payoff from an approved reform with high effort and low wage
was given by 64 and the two possible outcomes were (80; 0). As can be
taken from the table, expected payoffs from approved reforms exceeded the
Ac

certain payoffs from blocked reforms irrespective of the wage offer. Since
60 > 0.2
0.8
× 60 + 20 = 35, the condition for an organizational reform to be
efficiency enhancing was fulfilled even if the employer chose the higher wage
and thus increased the potential wage loss due to being laid off in the course
of the reform. As final payoff, subjects received the cumulated outcome of
five randomly chosen periods.
The two types of Nash equilibria for employees with self-regarding prefer-
ences described by Theorem 1 can easily be retraced by means of the table.
First, assume that the complete personnel has chosen to expend low effort

13

Page 14 of 45
and the reform is blocked. The payoff of employee j is 40 points (60 points
with the higher wage) as compared to 20 points (40 points) if she switched to
high effort. Hence, there is no incentive for deviating from low effort. Second,
any combination of three employees expending high effort and two employees
expending low effort is an asymmetric Nash equilibrium. High-effort employ-

t
ees are pivotal. Switching to low effort would cost them 64 − 40 = 24 points

ip
(80 − 60 = 20 points). Low-effort employees cannot improve by switching to
high effort; they just would lose 80 − 64 = 16 points (96 − 80 = 16 points).
Recall that effort has only to be expended if the employee is not laid off.

cr
Hence, the loss is 20 × (1 − 0.2) = 16 points.
Additionally, there may be a further equilibrium which only exists if the

us
employees exhibit reciprocal altruism as described by the model. If the (psy-
chological) payoff R of reciprocating high wage with high effort is high enough
(R > E, here: R > 20), all employees choose high effort. Note that Table
2 was not shown to the subjects. During the experiment, they instead saw
an
a table only stating after-reform payoffs. They could calculate the expected
payoffs themselves if desired.
Since the game was sequential, the optimal strategy for the employer can
M
be derived by backward induction. In case the employees have self-regarding
preferences and choose the no-reform-equilibrium (nh = 0), the employer
receives 25 points if she offered a low wage and 0 points if she offered a high
wage (compare Table 1). Analogously, in case the employees coordinate on
ed

one of the reform-equilibria (nh = 3), the employer gets 80 (60) points if she
offered a low (high) wage. If the employer comes to the conclusion that all
employees choose low effort anyway because she assumes that employees have
pt

self-regarding preferences, she is better off choosing low wage. The same is
true if she believes that the personnel will try to coordinate on the reform-
equilibrium irrespective of wage offer. Conversely, she will only choose high
ce

wage if she believes that the condition R > E is met and that the employees
will reciprocate by choosing high effort so that the reform is adopted.
The experiment involved several control treatments varying the parame-
Ac

ters of the Baseline treatment. The treatment structure can be taken from
Table 3. The Baseline treatment involved an employer, a wage benefit of
b = 60 points and majority ‘voting’ with m = 3. Here, the focus is on the
employees’ ability to coordinate on the efficient reform equilibrium and the
impact of the employer’s wage offer on effort choice and reform outcome.
In order to control for reciprocity towards the employer, the Random
Wages treatment was conducted. Here, wages were randomly assigned to
the employees, everything else remaining unchanged. Half of the groups were
endowed with a high wage, the other half with a low wage. The employees
knew that their wage was determined by a random device and not by the

14

Page 15 of 45
employer, who was not able to make a decision in this treatment. Hence, if
we observe in the Baseline treatment an increase of approved reforms due
to a higher wage offer that is paralleled by the Random Wages treatment,
reciprocity drops out as an explanation.

t
Table 3: Treatment Structure of the Experiment

ip
Random Wage
Treatment Wages Benefit Quorum Control

cr
Baseline no 60 majority
Random Wages yes 60 majority reciprocity
Low Wage no 35 majority efficiency

us
Benefit
Unanimity no 60 unanimity free riding

an
The Low Wage Benefit treatment involved a lower wage benefit (b =
35 points) and therefore mitigated incentives for expending high effort: For
the higher wage of 60 points, the efficiency condition (4) is barely fulfilled if
0.2
the employee expends high effort ( 0.8 × 60 + 20 = 35). Hence, if there has
M
been support for the organizational reform in Baseline, it is expected to
drop sharply in Low Wage Benefit.
As noted in the theory section the organizational reform involves a free
rider problem: Employees benefit from choosing low effort if sufficiently many
ed

other employees opt for high effort such that the organizational reform is
adopted. The Unanimity treatment removed free riding incentives by rais-
ing the quorum to the maximum. This treatment has two Nash equilibria:
pt

Either the complete personnel chooses low effort, or it chooses high effort.
On the one hand, removing the incentive to free-ride should make the reform
equilibrium more likely. The coordination might also be easier because the
ce

reform equilibrium is now symmetric instead of asymmetric. On the other

hand, it might be more difficult to find five employees who are willing to
expend high effort instead of three.
Ac

We also conducted a No Vote treatment as a robustness check for our

results.16 In No Vote, the reform was implemented automatically – irre-
spective of high effort choices. Therefore, one employee in each group received
a payoff of 0 and the wage benefit of 60 was paid to the other 4 employees
with certainty. The inclusion of this treatment allows us to control if fairness
16
Note that we also conducted a No Employer treatment, where the wage was ran-
domly determined like in Random Wages but without an employer. Since this treatment
involves two changes as compared to the Baseline treatment (random wage/no employer),
we do not report it here. The robustness check No Vote and the main treatment Random
Wages (as a replacement for No Employer) were suggested by a referee.

15

Page 16 of 45
concerns towards the employee who is (possibly) laid off in Baseline matter
for the effort-decision of subjects. In No Vote, these considerations should
be irrelevant, since one cannot ‘save’ a fellow employee from unemployment.

4.2 Preference Elicitation Tasks

t
ip
Subjects might differ with respect to their inequality aversion, efficiency pref-
erences and risk attitudes. In the first part of the experiment, we therefore
conducted Kerschbamer’s test (Kerschbamer, 2015) in order to elicit the sub-

cr
jects’ inequality aversion and efficiency preferences. In the last part of the
experiment, we elicited their risk attitudes using the standard lottery selec-

us
tion design by Holt and Laury (2002, 2005) in the slightly modified version
by Balafoutas et al. (2012).
In the Kerschbamer-test, subjects were faced with a series of ten binary
choices, split into two blocks. Within each block of five choices, subjects had
an
to allocate points to themselves and a ‘passive person’. The choices involved
a trade-off between efficiency (number of points in total) and advantageous
inequality (first block) or disadvantageous (second block) inequality. In order
M
to save space, we omit details and refer to the original description of the
double price-list technique by Kerschbamer (2015). For a recent application
to anti-reform bias, see Paetzel et al. (2014). The instructions can be found
in Appendix D. At the end of the task, subjects received a combined payoff
ed

of one of their ten choices as a decision maker and as a ‘passive person’. It

was not possible to be matched with the same person twice.
The disadvantageous inequality block provided a measure of efficiency
pt

preferences, the willingness-to-pay for disadvantageous inequality, W T P d ∈

[−0.667, 0.667]. It was calibrated to the allocation where a subject switched
from the more-efficient-self-disadvantageous to the more equal allocation. A
ce

negative W T P d means that the subject was willing to sacrifice efficiency for
a more equal allocation, while positive values mean a preference for efficiency
in spite of getting a lower payoff than the ‘passive person’. Analogously, the
Ac

advantageous inequality block provided a measure of inequality aversion, the

willingness-to-pay for advantageous inequality W T P a ∈ [−0.667, 0.667]. It
was calibrated to the allocation where a subject switched from the more-
efficient-self-advantageous to the more equal allocation. A negative W T P a
means that the subject was willing to sacrifice equality for a more efficient
allocation, while positive values mean a preference for equality in spite of
sacrificing own payoff.
In the lottery-selection task, subject were assigned a score Q ∈ [0, 1],
where Q = 0.5 marks risk neutrality. Lower (higher) values indicate risk
aversion (risk seeking). At the end of the task, one decision was randomly

16

Page 17 of 45
chosen for payoff. Instructions are provided in Appendix D.

4.3 Procedures
The experiment was conducted at the experimental laboratory of the Univer-

t
sity of Hamburg and involved ten sessions with 240 subjects, mostly students

ip
of economics. 48 subjects participated in each of the treatments (two sessions
with 24 subjects in each session).17 Upon arrival at the laboratory, subjects
were randomly placed at the computers. For each part of the experiment

cr
separately, they received written instructions, which were read aloud by the
experimenter. Sessions lasted for about 60–75 minutes. The highest payoff
was 22.32 e, the lowest payoff 4.77 e and the average payoff 12.23 e. Control

us
questions were answered correctly 90% of the time. All decisions and payoffs
were made in private.

5 Results
an
In this section, we present the results of the experiment. We start by showing
M
descriptive statistics of the employer’s wage choices, the employee’s effort
decisions and reform outcomes in our main treatments. Then, we turn to
statistically testing our hypotheses. First, we examine the reform outcomes
ed

and analyze the data at the group level. Afterwards, we take into account
preference heterogeneity and study the employees’ individual effort choices.

5.1 Descriptive Statistics

pt

In three of the four main treatments (Baseline, Low Wage Benefit and
Unanimity), the organizational reform task began with employers making
ce

their wage choices. Table 4 presents the employers choices by treatment

pooled for all 20 periods. Out of a total of 160 wage offers in each treatment,
high wage was chosen 57 times (35.6%) in Baseline and 54 times in Low
Ac

Wage Benefit and Unanimity (33.6%). As mentioned in Section 4.1, the

percentage of high wage offers in Random Wages was technically fixed at
50: half of the 160 groups received wage 40 (= 80 groups) and the other
half wage 60 (= 80 groups). Table 4 suggests that about two thirds of the
employers expected reciprocal behavior of employees, which would enhance
17
The distributional and risk preference elicitation tasks were conducted for each treat-
ment and did not change across treatments.

17

Page 18 of 45
their own payoff.18

Table 4: Number of Wage Choices by Treatment

Treatment Low Wage High Wage Total
103 57 160

t
Baseline

ip
Random Wagesa 80 80 160
Low Wage Benefit 106 54 160
Unanimity 106 54 160

cr
Notes: Absolute number of employers wage choices.
a Technically fixed.

us
The employees were then informed about the wage offer of their employer.
Afterwards, they chose their effort level. Figure 1 shows individual effort de-
cisions by treatment (left side) and by treatment and wage offer (right side),
an
aggregated over all 20 periods. Based on the employees’ individual effort
decisions, the computer calculated the organizational reform outcome for
each group. Figure 2 shows the share of approved organizational reforms
M
by treatment (left side) and by treatment and wage offer (right side), again
aggregated over periods. In the Baseline treatment, 40% of the reform
proposals were actually implemented. With Low Wage Benefit the share
of approved reforms decreased to 10%. In the Random Wages treatment,
ed

20.6% of the reform proposals succeeded. If Unanimity in terms of high

effort was required, the share of approved reforms dropped sharply (0.6%).
Of course, the figure on the left is not really telling as to treatment effects
pt

because it pools group outcomes over different wages. The right figure there-
fore depicts the share of approved reforms by wage offer. In principle the
right figure replicates the overall pattern of the left, but it additionally re-
ce

veals that the share of approved reforms is positively related to the size of
the wage offer, except for the Random Wages treatment.
Figure 3 shows the share of approved reforms by period for all the main
Ac

treatments pooled. The solid (dashed) line displays the results for low (high)
wage offers only. When looking at the solid line for the low wage offer, we
observe a declining share of adopted reforms by period with end-of-sequence-
effects. By contrast, we cannot observe a clear trend across periods for the
high wage offer.
A first glance at the data confirms that Hypothesis 1 does not hold true:
The personnel did not resist uncertain changes per se. There were many
18
Other motivations for employers to chose high wage might be altruism or efficiency-
preferences. However, in a regression with wage choice as the dependent variable, we do
not find evidence for a significant influence of either variable (Appendix B).

18

Page 19 of 45
 .59
.5

.6
0.46

Share of High Effort Decisions

.45
.4
Share of High Effort Decisions

.39

.4
0.33 .37
.33 .33
.3

0.22 0.22

t
.2
.2

.15

ip
.1
.1

0
Baseline Low Wage Benefit Random Wages Unanimity

cr
n = 515 n = 285 n = 530 n = 270 n = 400 n = 400 n = 530 n = 270
0

Baseline Low Wage Benefit Random Wages Unanimity

n = 800 n = 800 n = 800 n = 800 Low Wage Offer High Wage Offer

Figure 1: Share of High Effort Decisions by Treatment and Wage Offer

us
0.40 0.63
.4

.6
Share of Approved Reforms

an
Share of Approved Reforms
.3

.4

0.21
0.27
.2

0.22
0.19 0.19
.2
M
0.10
.1

0.06
0.02
0.00
0

Baseline Low Wage Benefit Random Wages Unanimity

0.01
n = 103 n = 57 n = 106 n = 54 n = 80 n = 80 n = 106 n = 54
0

Baseline Low Wage Benefit Random Wages Unanimity

n = 160 n = 160 n = 160 n = 160 Low Wage Offer High Wage Offer
ed

Figure 2: Share of Approved Reforms by Treatment and Wage Offer

pt

employees in all treatments who tried to coordinate on a reform equilibrium,

which lead to several successful reforms.
ce

5.2 Reform Outcomes

Table 5 displays the results of random-effects logit regressions of several vari-
Ac

ables on reform outcome, where (reform approved = 1/reform blocked = 0).

In Table 5, we pool the data of our main treatments (Baseline, Random
Wages, Low Wage Benefit, Unanimity), use Baseline as the bench-
mark treatment and also report separate regressions for low wage and high
wage offers.
In our statistical analysis, we first turn to our second hypothesis and ex-
amine how the wage offer influenced the reform outcome. Regression Pooled1
shows a strong positive impact of high wage on reform approval. To check
whether the difference in behavior of employees was motivated by reciprocal
altruism we look at the treatment effect Random Wages. While regression

19

Page 20 of 45
 Figure 3: Share of Approved Reforms by Period

.6
Share of Approved Reforms
.5

t
.4

ip
.3

cr
.2

0 5 10 15 20
period

Low Wage Offer High Wage Offer

us
Pooled1 shows that Random Wages has a significant negative effect on
approved reforms, regression Pooled2 reveals that it is the interaction of a
high wage offer with the treatment effect Random Wages that can explain
the difference in behavior in the treatments Baseline and Random Wages
(note that the pure treatment effect Random Wages becomes insignificant
an
in Pooled2). This exactly confirms our reciprocity model. The other regres-
M
sions reinforce our main finding: Random Wages has a significant negative
effect if we consider high wage offers only, however, the effect is not signifi-
cant for low wage offers only. Hence, we surmise that the difference in reform
ed

approval for high wage offers can be explained by reciprocal altruism, thus
confirming Hypothesis 2.
Second, we check for the impact of the size of the wage benefit, that is, the
efficiency of the reform, on the reform outcome. Given the parametrization
pt

of the Low Wage Benefit treatment, equation (4) makes the approval of
reforms less likely than in the Baseline treatment. The pooled regressions
of Table 5 all show that Low Wage Benefit has a significant negative effect
ce

on reform outcomes. Hence, efficiency concerns mattered for employees as

predicted.
Next, we screen the group data for occurrences of Nash equilibria. This
Ac

is done by means of Table 6. Numbers before the slash in each column

report relative case numbers for five cases: (i) no-reform equilibrium19 ; (ii)
under-coordination20 ; (iii) reform equilibrium21 ; (iv) over-coordination22 ; (v)
19
None of the five employees chose high effort, nh = 0.
20
At least one employee but less employees than required by the threshold chose high
effort: 0 < nh < 3 in Baseline, Low Wage Benefit, and Random Wages and
0 < nh < 5 in Unanimity.
21
Exactly the required number of employees chose high effort: nh = 3 in Baseline,
Low Wage Benefit, and Random Wages and nh = 5 in Unanimity.
22
More employees than required by the threshold but in case of wh less than needed for

20

Page 21 of 45
 Table 5: Reform Outcomes
Pooled/Low Pooled/High
Variable Pooled1 Pooled2 Wage Offer Wage Offer
High Wage Offer 0.890** 1.546*** — —
(0.412) (0.292)

t
-1.261* -0.369 -0.322 -2.064***

ip
Random Wages
(0.747) (0.663) (0.670) (0.714)
Low Wage Benefit -2.051*** -2.169*** -1.942** -2.121***

cr
(0.541) (0.587) (0.897) (0.350)
Unanimity -5.089*** -5.300*** 0.000 -4.712***
(0.763) (0.761) (.) (0.846)

us
Period -0.094*** -0.092*** -0.118*** -0.054
(0.025) (0.026) (0.037) (0.049)
High Wage Offer x — -1.853*** — —
(0.348)
Random Wages
Constant 0.180
(0.472)
an
-0.093
(0.462)
0.169
(0.422)
1.090*
(0.573)
Wald-χ2 96.183 1096.919 19.817 50.750
M
p(χ2 ) <0.001 <0.001 <0.001 <0.001
n 640 640 289 245
Notes: Random-effects logit regressions. Dependent variable: reform (re-
ed

form approved = 1/reform blocked = 0). Session clustered standard errors.

In Pooled/Low Wage Offer: Unanimity= 1 predicted failure perfectly;
Unanimity was dropped and 106 observations were not used in this re-
gression. *p ≤ 0.10. **p ≤ 0.05. ***p ≤ 0.01.
pt

reciprocity equilibrium23 . Relative case numbers are pooled over 20 periods

ce

and are reported for both wage offers combined as well as separately for low
(wl ) and high (wh ) wage offers.
Table 6 shows the incidence of equilibrium outcomes crucially depended
on treatment and wage offer. Outcomes ranged between 0% and 64.2% for
Ac

no-reform equilibria and 0% and 33.3% for reform equilibria. Reciprocity

equilibria were only present in Baseline and were infrequent (5.3% with
wh ), which indicates that employees exhibit heterogeneity with respect to
the size of R in relation to E. We also observed many groups that failed to
the reciprocity equilibrium chose high effort: nh > 3 for the low wage wl and nh = 4 for the
high wage wh in Baseline, Low Wage Benefit, and Random Wages, non-applicable
in Unanimity.
23
All five employees chose high effort when offered a high wage by the employer: nh = 5
for wh , non-applicable in Random Wages and for wl in all treatments.

21

Page 22 of 45
 Table 6: Nash Equilibria and Efficiency of Reform Outcomes
Wage No-reform Under- Reform Over- Reciprocity Testa
Ac
Treatment offer equilibrium coordination equilibrium coordination equilibrium χ2 p
all 4.4 / 3.125 55.6 / 46.875 23.1 / 31.25 15.0 / 17.637 1.9 / 1.113 8.258 0.082
6.8 / 3.125 66.0 / 46.875 17.5 / 31.25 9.7 / 18.750 n.a. 23.239 0.0
Baselineb
ce
wl
wh 0.0 / 3.125 36.8 / 46.875 33.3 / 31.25 24.6 / 15.625 5.3 / 3.125 6.832 0.145
all 15.0 / 3.125 64.4 / 46.875 16.3 / 31.25 4.4 / 18.750 n.a. 111.81 0.0
Random
pt
wl 13.8 / 3.125 63.8 / 46.875 17.5 / 31.25 5.0 / 18.750 n.a. 46.67 0.0
Wages
wh 16.3 / 3.125 65.0 / 46.875 15.0 / 31.25 3.8 / 18.750 n.a. 66.07 0.0
ed

22
all 32.5 / 3.125 57.5 / 46.875 8.1 / 31.25 1.9 / 17.695 0.0 / 1.055 497.35 0.0
Low Wage
wl 47.2 / 3.125 47.2 / 46.875 5.7 / 31.25 0.0 / 18.750 n.a. 700.12 0.0
Benefit
3.7 / 3.125 77.8 / 46.875 13.0 / 31.25 5.6 / 15.625 0.0 / 3.125 22.03 0.0
wh
all 45.6 / 3.125 53.8 / 93.750
M
0.6 / 3.125* n.a. same as * 955.31 0.0
Unanimity wl 64.2 / 3.125 35.8 / 93.750 0.0 / 3.125 n.a. n.a. 1304.45 0.0
wh 9.3 / 3.125 88.9 / 93.750 1.9 / 3.125** n.a. same as ** 6.92 0.031
an
Notes: Percentages of observed outcomes / expected outcomes (expected when assuming pure chance: the effort
choice is a Bernoulli trial with p = (1 − p) = 0.5). n.a.=non-applicable. In Unanimity, the reform equilibrium
and the reciprocity equilibrium both involve 5 employees exhibiting high effort. a χ2 Goodness-of-fit test (under
us
the null hypothesis group observations follow a binomial distribution). b In Baseline, wh (wl ) was chosen 57
(103) times. c In Low Wage Benefit, wh (wl ) was chosen 54 (106) times.
cr
ip
t

Page 23 of 45
coordinate on an equilibrium, where under-coordination was most prevalent
(36.8%-88.9%). Over-coordination made up 0% to 24.6%.24
In order to check whether this pattern of equilibrium outcomes was driven
by chance or by the personnel’s (useless) effort to coordinate, we construct a
plausibility test. As suggested by Becker (1962, p.5), ‘impulsive’ and ‘erratic’

t
irrational behaviors are modeled probabilistically. Under the null hypothesis

ip
we therefore assume that employees were acting completely irrational, just
randomizing between high and low effort, which is in line with Becker’s (1962)
model. Consequently, the probability of observing exactly k employees out

cr
of a groups
of five to expend high effort is given by the binomial distribution
q(k) := k5 0.55 . Using this formula, we can compute the expected number

us
of group observations for each outcome, which are listed after the slash for
each case in Table 6. For example, we would expect 3.125% of the groups
to coordinate by chance on a no-reform equilibrium and we would expect
31.25% to coordinate by chance on a reform equilibrium. For Unanimity
an
the expected relative case numbers are different due to the impossibility of
inefficient reforms.25
Performing one-sided χ2 goodness-of-fit tests between the observed and
M
the expected number of group outcomes gives the following results, reported
in the last two columns of Table 6. The test rejects the null hypothesis
of pure chance (implying a binomial distribution of group outcomes) for
all treatments and wage offers except for wh of the Baseline treatment.
ed

Hence, there is strong evidence that outcomes were not driven by chance.
With the exception of Baseline for high wage offers, no-reform equilib-
ria were over-represented and reform-equilibria were under-represented in all
pt

treatments. We also observe high numbers for under-coordination and rel-

atively low numbers for over-coordination compared to the expectation of
pure chance. It seems that groups mostly alternated between the no-reform-
ce

equilibrium, under-coordination and reform-equilibria. This was a probable

outcome since groups were rematched in every round and there was no way
of knowing exactly how many group-members exerted high effort in the pre-
Ac

vious period.
24
We also looked at mixed strategy equilibria. However, the Baseline, Random
Wages and Low Wage Benefit treatments do not have mixed strategy equilibria for
the given parametrization of the experiment. The Unanimity treatment exhibits a mixed
strategy equilibrium for each wage: The probability of an employee choosing high effort
is 0.82 at wage 40 (0.84 at wage 60). Thus, the probability of the reform being adopted,
is 37.07% (41.82%).
25
We do not use a quantal-response equilibrium (see McKelvey and Palfrey, 1992),
because there are many asymmetric pure strategy and no mixed strategy equilibria in
each of the treatments Baseline, Random Wages and Low Wage Benefit (when
assuming self-regarding preferences of employees).

23

Page 24 of 45
 We now turn to the Unanimity treatment and the role of free-riding in
the reform outcome. In Unanimity, there was the highest number of no-
reform-equilibria among all treatments (45.6% for all wages). This number
was also considerably higher than expected under pure chance. In total,
only 1% of reform outcomes in this treatment succeeded and only with a

t
high wage offer. However, the share of high effort decisions for high wage

ip
offers was 45%, close to the 59% of Baseline and higher than in Low Wage
Benefit and Random Wages (compare Figure 1). The picture is different
for low wage offers, where the share of high effort decisions was only 10%,

cr
considerably lower than the 39% of Baseline. As it seems, free riding only
mattered with low wage offers. To see whether the differences are significant,

us
we analyze individual effort decisions of employees in the next subsection.
In addition to our four main treatments, we also conducted the No Vote
treatment as a robustness check. Figure 5 (Appendix C) displays a compar-
ison of individual effort decisions between Baseline and No Vote. Figure
an
5 shows that the share of high effort decisions was much lower in No Vote
than in Baseline: 3% (24%) if employees received a low wage offer (high
wage offer). These results reinforce the finding that coordination in Base-
M
line was an important motive in the decision process of employees. Fairness
considerations towards the ‘fired’ employee, however, did not seem to play a
role. The difference in effort between low and high wage within No Vote is
another signal for reciprocity: The existence of an employer alone does not
ed

lead to high effort, but rather her benevolent behavior towards employees.

5.3 Individual Effort Decisions

pt

Table 7 displays the results of random-effects logit regressions of several vari-

ables on employees’ effort choices, where (high effort = 1/low effort = 0).
ce

Table 7 pools the data of our four main treatments with Baseline as the
benchmark treatment and also reports separate regressions for low wage and
high wage offers.26 The pooled samples show the same treatment effects that
Ac

we observed with group outcomes. The regressions also reveal a positive im-
pact of high wage offers and a negative impact of the interaction term High
Wage Offer x Random Wages on effort choice. In accordance with the
results of Table 5, the treatment effect Random Wages becomes insignifi-
cant when we include the interaction High Wage Offer x Random Wages
(regression Pooled2).
In regression Pooled/Low Wage Offer, which only considers low wage
26
Note that, in contrast to the regressions in Table 5, standard errors in Table 7 are
clustered at the individual level.

24

Page 25 of 45
 Table 7: Individual Effort Decisions
Pooled/Low Pooled/High
Variable Pooled1 Pooled2 Pooled3 Wage Offer Wage Offer
High Wage Offer 1.046*** 1.431*** 1.490*** — —
(0.097) (0.115) (0.125)

t
-0.957*** -0.263 -0.269 -0.405 -1.623***

ip
Random Wages
(0.313) (0.329) (0.337) (0.366) (0.494)
Low Wage -1.456*** -1.493*** -1.319*** -1.466*** -1.396***

cr
Benefit (0.316) (0.319) (0.326) (0.383) (0.508)
Unanimity -1.448*** -1.493*** -1.054*** -1.454*** -0.728
(0.315) (0.318) (0.333) (0.407) (0.510)

us
Period -0.078*** -0.076*** -0.075*** -0.096*** -0.053***
(0.008) (0.008) (0.010) (0.014) (0.016)
High Wage Offer x — -1.412*** -1.306*** — —
(0.215) (0.234)
Random Wages
Pivotal — an — 1.538***
(0.120)
1.563***
(0.167)
1.554***
(0.205)
Q — — 1.012 1.213 0.963
M
(0.830) (0.985) (1.251)
WTPa — — 0.210 0.148 0.726
(0.396) (0.469) (0.603)
WTPd — — 0.066 -0.342 0.412
ed

(0.422) (0.499) (0.633)

High Wage Offer (t-1) — — -0.151 -0.104 -0.130
(0.107) (0.155) (0.170)
Reform Approved (t-1) — — 0.297** 0.673*** 0.223
pt

(0.146) (0.202) (0.238)

Fired (t-1) — — -0.086 -0.361 -0.088
(0.298) (0.435) (0.474)
ce

Fire Percentage — — -0.060 -0.055 -0.211

(1.033) (1.308) (1.708)
Constant 0.232 0.068 -1.131** -0.991* -0.093
Ac

(0.236) (0.239) (0.479) (0.567) (0.733)

Wald-χ2 234.536 264.959 387.429 188.001 81.741
p(χ2 ) <0.001 <0.001 <0.001 <0.001 <0.001
n 3200 3200 3040 1880 1160
Notes: Random-effects logit regressions. Dependent variable: effort choice (high effort
= 1/low effort = 0). *p ≤ 0.10. **p ≤ 0.05. ***p ≤ 0.01.

offers, we see that Unanimity has a significant negative impact on effort

choice. Taking a glance at the regression Pooled/High Wage Offer shows

25

Page 26 of 45
that this effect is absent if we consider high wage offers only. This result
confirms our suspicion that free riding only played a role with low wage
offers. The result also reinforces our affirmation of Hypothesis 2, because
it implies that in our setting, reciprocity is a stronger motive for decision
making than free riding considerations.

t
We now turn to the individual variables for beliefs, risk aversion, inequal-

ip
ity aversion and efficiency preferences and their influence on effort choice. In
Table 7 we see a positive effect of believing to be pivotal, which is signif-
icant in all regressions. The positive coefficient seems to be driven by the

cr
employees’ desire not to be the one who blocks the reform if there are enough
other group members who approve it. The risk attitude measure Q of the

us
employees is insignificant in all regressions. As it seems, reciprocity con-
cerns crowded out such risk considerations and employers primarily focused
on their employer’s wage offer. The regressions additionally reveal that effi-
ciency preferences (W T P a ) and inequality aversion (W T P d ) did not matter
for effort choice. an
Starting with regression Pooled3, we also included lagged variables of
previous periods as further controls, namely, whether employees had received
M
a high wage offer, whether the reform had been implemented and whether the
employee had been fired in the previous period (yes = 1/no = 0).27 Pooled3
shows that there is a significant positive effect on effort if the reform had been
approved in the previous period. While the coefficient is also significant if
ed

we consider low wage offers only, it becomes insignificant if we consider high

wage offers only. If given a low wage offer, it seemed to motivate employees
that the reform had been successful in the past and also might have signaled
pt

to employees that coordination on an equilibrium was worth trying. If given

a high wage offer, reciprocity towards the employer seemed to overshadow
such considerations.28
ce

6 Conclusion
Ac

For managers in businesses and other organizations, resistance to change

is an important topic. Many major reform initiatives in organizations fail
because the personnel does not offer support but resists to change. The aim
27
The variable ‘Fire Percentage’ refers to the percentage of how many times the employee
had been laid off in all previous periods combined.
28
An alternative explanation might be that employees exhibited indirect reciprocity
towards their fellow employees: If the reform had been successful in the previous period,
an employee might have wanted to give something back in form of choosing high effort,
even though groups were randomly rematched in every round.

26

Page 27 of 45
of this paper was to analyze the conditions under which employees resist
uncertain changes and to see whether reciprocity towards the employer helps
to increase acceptance. We conducted a laboratory experiment where the
employees of a group could vote on change by choosing their effort. The
reform was only implemented if a minimum level of effort was reached, which

t
resulted in a threshold contribution game combined with an element of gift

ip
exchange. We hypothesized that employees would reject the reform because
of the difficulty to coordinate and due to uncertainty over payoffs (‘status quo
bias’). However, if the employees received a higher wage from their employers

cr
(‘fair wage’), they would respond by choosing high effort and passing the
reform.

us
We find that uncertainty does not lead to resistance to change per se.
Instead, employees tried to coordinate on an efficient reform equilibrium,
leading to several successful reforms. We observed the highest number of
successful reforms if employees were offered a high wage by their employer,
an
which triggered reciprocity in employees and thus induced the selection of
high effort. However, the personnel also frequently failed to coordinate to an
equilibrium. Reciprocity not only crowded out worries in employees about
M
being laid off after the reform but was also more important than free riding
considerations. Moreover, the belief of being pivotal for the group outcome
was very important for the decision of employees, whereas inequality aversion
and efficiency preferences did not have an impact.
ed

The observed results confirm the findings of related studies. In experi-

ments on threshold contribution games, researchers often encounter similar
or slightly higher approval rates for public goods. For example, van de Kragt
pt

et al. (1983) find that a threshold public good is provided 61-72 % of the
time without communication. As with reform in our study, higher values
of the public good lead to increased contributions, whereas a higher thresh-
ce

old decreases the likelihood of implementation (Cadsby and Maynes, 1999;

Croson and Marks, 2000). However, in these studies all participants profit
from the public good – there is no uncertainty regarding winners and losers.
Ac

In a related paper by Cason and Mui (2005), the authors study a (costly)
voting choice on an efficiency-enhancing reform. Our analysis confirms their
experimental results: the incidence of reform is decreasing with uncertainty.
We characterize our main finding as the effect of reciprocity towards a
third party, which leads to less resistance and more adopted reforms. This
outcome is in line with gift exchange experiments such as Fehr et al. (1997),
Gächter and Falk (2002) and Brown et al. (2004), who all identify a strong
positive relationship between wage and effort.

27

Page 28 of 45
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ed
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Appendix
A Proof of Theorem 1
In order to prove Theorem 1 we focus, without loss of generality, on a single

t
employee j = 1, who assumes that everyone including herself acts rationally

ip
according to their utility functions (1) and (2). Consider the situation in
which j knows the individual effort of each other employee, {e2 , . . . , en }.
Three cases can be distinguished:

cr
n
P
i. If ej ≥ θ, then the reform is adopted anyway. The employee will

us
j=2
choose e1 = 0 due to (1 − s)(w + b − E) < (1 − s)(w + b).
n
P
ii. If E + ej < θ, then the reform is not adopted anyway. The employee
j=2
will choose e1 = 0 due to w − E < w.
an
iii. If neither (i) nor (ii) holds, the employee is pivotal. She chooses as
M
follows: 
0 if (1 − s)(w + b − E) < w
e1 = .
E otherwise
ed

Case (i) implies that there cannot exist a symmetric Nash equilibrium char-
acterized by the complete personnel choosing high effort, which is due to our
assumption that m < n. In words, if the reform has already been adopted,
the best response of employee 1 is choosing low effort. Case (ii) analogously
pt

implies that there exists a symmetric Nash equilibrium characterized by the

complete personnel choosing low effort, which is due to our assumption that
ce

1 < m. In words, if the reform cannot be adopted anyway, choosing low

effort is her best response. According to case (iii) the situation where ex-
actly m employees chose high effort and n − m employees choose low effort
is an (asymmetric) Nash equilibrium only if w ≤ (1 − s)(w + b − E). This
Ac

expression can be rewritten as follows:

s
b≥ w+E , (8)
1−s
which parallels our definition of efficiency enhancing reforms, see equation
(4). Hence, choosing high effort is the best response of the pivotal employee
and (iii) is a Nash equilibrium.

33

Page 34 of 45
B Wage Offers by Employers
An own-payoff-maximizing employer who expects her employees to have
self-regarding preferences always chooses low wage: the two types of Nash-
equilibria for employees exist for either wage offer and the employer gets a
higher payoff for offering w = 40 than for w = 60. Hence, she will only

t
ip
choose high wage if she believes that by doing so she can positively influence
the effort of employees.
On the other hand, an employer might have been motivated by social

cr
preferences instead of selfish payoff-maximization. To find out which factors
played a role, we conduct a random-effects logit regression of several vari-
ables on employers’ wage choices, where (high wage = 1/low wage = 0). We

us
use the three main treatments where the employer could make a wage deci-
sion (Baseline, Low Wage Benefit and Unanimity). The results are
displayed by Table 8.29 We see that social preferences did not play a role,
whereas the period number had a significant negative impact on wage offer.
Figure 4 shows the share of high wage offers by period (solid line) and, as
an
comparison, the share of approved reforms for low wage offers (dotted line)
M
and high wage offers (dashed line).

Figure 4: Share of High Wage Offers and Approved Reforms by Period

ed
.6 .4
Percentages

pt .2
ce 0

0 5 10 15 20
Period

Share of High W. Offers Share of Reforms, Low W.

Share of Reforms, High W.
Ac

29
Standard errors in Table 8 are clustered at the individual level.

34

Page 35 of 45
 t
ip
cr
us
Table 8: Employers Wage Offer
Variable Employer I
WTPa 1.113

WTPd
an (0.719)
1.041
(0.775)
Q -0.020
M
(1.236)
Period -0.066***
(0.018)
Constant -0.485
ed

(0.655)
Wald-χ2 18.246
p(χ2 ) 0.001
pt

n 480
Notes: Random-effects logit regres-
ce

sion. Dependent variable: wage of-

fer (high wage = 1/low wage = 0).
*p ≤ 0.10. **p ≤ 0.05. ***p ≤ 0.01.
Ac

35

Page 36 of 45
C Robustness Check

0.59

.6
Share of High Effort Decisions

t
0.39
.4

ip
0.24
.2

cr
0.03
0

Baseline No Vote
n = 515 n = 285 n = 480 n = 320

us
Low Wage Offer High Wage Offer

Figure 5: Share of High Effort Decisions by Wage Offer in Baseline and

No Vote
an
M
ed
pt
ce
Ac

36

Page 37 of 45
D Instructions
D.1 Preliminaries
Welcome to the experiment. In this experiment, you will earn money pro-
vided that you read these instructions carefully and follow the rules. The

t
money will be paid out to you in cash immediately after the experiment. Dur-

ip
ing the experiment, we will use the term ‘points’ instead of Euros. Points
will be converted into Euros as follows: 100 points = 3 Euros. During the

cr
experiment, you must not talk to other participants. If you have a question,
please ask us. We will answer your questions individually. Compliance with
these rules is important; otherwise, the results of the experiment will be of

us
no scientific use. The experiment consists of three parts. Each part will be
explained separately. In each part, you can earn money. All together, the
experiment will last for approximately 60 min.30

D.2 Part 1
an
In the 1st part, we will ask you to make 10 decisions. In each decision,
M
you are assigned to a group with another participant, who is called ‘passive
agent’. Your decision as an ‘active decision maker’ and the decision of the
passive agent are made anonymously. In each of the 10 decisions, the passive
ed

agent is a different randomly chosen participant. In all decisions, you always

have to choose between a left and a right option. The options are payoff
distributions, meaning that both options are associated with a payoff for you
and for the passive agent.
pt

We ask you to decide for each of the 10 decisions between the left and
right options. The 10 decisions will be presented in two blocks of 5 decisions
ce

each. Please compare row by row the left and right options and decide on
your preferred distribution for each row. You can make your decision by
clicking on the left or right button.
Calculation of your payoff from Part 1 : Your payoff from Part 1 results
Ac

from two partial payoffs. The 1st partial payoff results from the situation
in which you were the active decision maker. At the end of the 1st Part,
the program will randomly select 1 of the 10 decisions. For this decision
situation, your decision between left and right will determine the payoff for
yourself and the passive agent.
The 2nd partial payoff results from the situation in which you were the
passive agent. Following the same procedure as mentioned above, another
30
The original instructions were in German. This is an example for the Baseline Treat-
ment. The instructions for the other treatments are available on request.

37

Page 38 of 45
participant is randomly selected and determines with her chosen left-right-
decision your payoff in the role of being the passive agent. We make sure that
no two participants are in a reciprocal relation of being an active decision
maker and a passive agent for the same person.
Your total payoff from the 1st part of the experiment is calculated by

t
adding the payoffs from the situations in which you were the active decision

ip
maker and the passive agent.
If you have any questions, please raise your hand. One of the supervisors
will come to you and answer your questions.

cr
If you do not have further questions, please start and make your decisions
between the left and right options.

us
an
M
ed
pt
ce
Ac

38

Page 39 of 45
 Table 9: Choices in the Distributional-preferences Elicitation Task: Disadvantageous Inequality Block
LEFT Your choice RIGHT
You get Passive person gets You get Passive person gets
32 points 52 points ◦ LEFT RIGHT ◦ 40 points 40 points
36 points 52 points ◦ LEFT RIGHT ◦ 40 points 40 points
Ac
40 points 52 points ◦ LEFT RIGHT ◦ 40 points 40 points
44 points 52 points ◦ LEFT RIGHT ◦ 40 points 40 points
48 points 52 points ◦ LEFT RIGHT ◦ 40 points 40 points
ce
pt
Table 10: Choices in the Distributional-preferences Elicitation task: Advantageous Inequality Block
LEFT Your choice RIGHT
ed

39
You get Passive person gets You get Passive person gets
32 points 28 points ◦ LEFT RIGHT ◦ 40 points
M 40 points
36 points 28 points ◦ LEFT RIGHT ◦ 40 points 40 points
40 points 28 points ◦ LEFT RIGHT ◦ 40 points 40 points
44 points 28 points ◦ LEFT RIGHT ◦ 40 points 40 points
48 points 28 points ◦ LEFT RIGHT ◦ 40 points 40 points
an
us
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ip
t

Page 40 of 45
D.3 Part 2
Now we start with the 2nd part of the experiment. The choices in the 2nd
part have no consequences on the payoffs of part 1 and 3 of the experiment.
The 2nd part is played for 20 periods, i.e., the same game is repeated 20
times in a row.

t
At the beginning of part 2, you are randomly assigned to a role (‘employer’

ip
or ‘employee’). The role stays the same for all 20 periods. In each period,
you are randomly assigned to a group which consists of 1 employer and 5

cr
employees. Therefore, every employer has 5 employees in his or her group
that change in each period.
First, we ask the employer to decide between two wages (40 or 60), which

us
will be received by the employees in his or her group. After the employer
has chosen the wage, the employees learn about the employers’ decision and
then have to decide on their effort, which can be ‘high effort’ or ‘low effort’.
an
If the majority of the employees of a group - that is 3, 4 or 5 employees
(at least 3) - chooses high effort, a ‘reform’ is put into place in the group.
Hence, there are two cases:
M
• reform: 3, 4 or 5 employees choose high effort.

• no reform: 0, 1 or 2 employees choose high effort.

ed

In the following, it is explained how the payoffs of the 2nd part of the
experiment are calculated and how they are linked to the two cases.
Calculation of employer’s payoff : The payoff of the employer is calculated
as follows:
pt

• reform: employer’s payoff = 30 × h + 15 × l − 4 × w × 1/4.

ce

• no reform: employer’s payoff = 30 × h + 15 × l − 5 × w × 1/4.

h is the number of employees who choose high effort; l is the number of

employees who choose low effort; w is the wage the employer chose.
Ac

Hence, there is a certain payoff for employers resulting from the decision
of the employees. One of the advantages of a ‘reform’ for an employer is that
he or she has to pay out one wage less (4 × w instead of 5 × w). The exact
payoffs for employers are shown to you now. You do not have to make any
calculations on your own.
Please take a look now at Figure 6, which the employer will also see on
his or her screen when making his or her decision during the experiment.
Explanation of Figure 6: First, the employer chooses between two wages:
40 or 60. Then, the 5 employees in the group individually choose between

40

Page 41 of 45
 t
ip
cr
Figure 6: Employer’s Payoff

us
an
M
ed
pt
ce
Ac

41

Page 42 of 45
low and high effort. This leads either to the ‘reform’ or the ‘no reform’ case.
The reform is approved if 3, 4 or 5 employees choose high effort (in Figure
6: ‘3 high’, ‘4 high’, ‘5 high’). The payoff for an employer who chose wage
40 then amounts to 80, 95 or 110 points; for a wage choice of 60 it is 60,
75 or 90 points, respectively. The reform is declined if 0, 1 or 2 employees

t
chose high effort (in Figure 6: ‘0 high’, ‘1 high’, ‘2 high’). The payoff for an

ip
employer who chose wage 40 then amounts to 25, 40 or 55 points; for a wage
choice of 60 it is 0, 15 or 30 points, respectively.
Calculation of employees’ payoff : As an employee, you receive the wage

cr
that has been chosen by the employer (40 or 60 points). If you choose high
effort, there are costs of 20 points that are subtracted from your payoff.

us
Choosing low effort does not cost anything.
If the reform is approved one randomly chosen group member who has
been assigned the employee role does not receive a payoff. The other 4
employees, however, receive their wage as well as a bonus of 60 points. Thus,
an
the probability of not receiving a payoff due to the reform is 20% (1 out of
5). If the reform is declined, all employees receive their payoff for certain,
but there is no bonus. Hence, the following rules apply for the employees’
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payoffs:

• Costs for choosing high effort: 20.

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• Costs for choosing low effort: 0.

• Reform is adopted: 4 employees receive wage + bonus − costs; 1 ran-

domly chosen employee does not receive a payoff.
pt

• Reform is declined: all employees receive wage − costs.

Please take a look at Tables 11 and 12, which employees will also see on
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their screen when making their decisions during the experiment.

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Table 11: Employees’ Payoff (Wage=40)

Payoff for low ef- Payoff for high Probability to
fort effort receive no payoff
Reform 100 80 20 %
No reform 40 20 0%

After each period, you learn about the effort decision of your group mem-
bers and if the reform was adopted. Additionally, it is revealed how many
points you earned on the previous period.

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 Table 12: Employees’ Payoff (Wage=60)
Payoff for low ef- Payoff for high Probability to
fort effort receive no payoff
Reform 120 100 20 %
No reform 60 40 0%

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ip
The total payoff from Part 2 is calculated as follows. The computer
randomly selects 5 of the 20 periods. Your payoff is calculated as the sum of

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the points you have earned in these 5 periods. You receive the information
about the payoff-relevant periods at the end of the experiment. As in the

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other parts of the experiment, the points are converted into Euros according
to the following exchange rate: 1 point=0.03 Euros (100 points=3 Euros).

D.4 Part 3 an
Now we start with the 3rd part of the experiment. In this part, you can again
earn some money. This part has no consequences for the payoff you obtained
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from the other parts of the experiment. In this part of the experiment, you
choose between two options A and B for 10 different situations, which means
you choose 10 times between options A and B. Option A always involves a
safe payoff of a certain amount of points. Option B always determines your
ed

payoff by exactly the same lottery.

The table below shows the 10 situations and the 2 options among which
you will have to choose. Either you see the table shown in Figure 7 or
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you see it in just the reverse order. The presentation of the table to you is
randomized.
Example: Option A in the 9th line is 112.5 for sure. Option B in the 9th
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line is 5/10: 125 and 5/10: 0. If you select option A in the 9th line, you get
a payoff of 112.5. If you select option B in the 9th line, you will get, in 5 out
of 10 cases (50%), a payoff of 125, and in 5 out of 10 cases (50%), a payoff
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of 0 points.
We ask you to decide for each of these following 10 situations between
options A and B. Please compare line by line options A and B and decide
for each line by clicking A or B.
Calculation of payoff from Part 3 : Your payoff from this part of the
experiment is determined as follows: The computer randomly selects 1 of
the 10 situations. Your decision in this situation is relevant for your payoff.
For example you have decided for option B in the 2nd line and the computer
randomly selects the situation in line 2 as relevant for the payoff. With a
probability of 5 out of 10 cases (50%), you will get 125 points as payment, and

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in 5 of 10 cases (50%), you will get 0 points. You can imagine an urn filled
with 5 white and 5 black balls for playing out the lottery. When a blindfolded
person grabs into the box and draws a white ball, you will receive a payout
of 125. If the drawn ball is black, you will get 0 points. The drawing of the
balls is automated in the experiment and is performed by the computer.

t
As in the previous parts of the experiment, the points are converted into

ip
Euros according to the following exchange rate: 1 point=0.03 Euros (100
points=3 Euros).
If you have any questions, please raise your hand and wait quietly until

cr
someone comes to you. If you have no further questions, then you can make
the selection of options A and B on the screen. After all participants have

us
completed the 3rd part of the experiment, all participants see their individual
payoffs of all three parts of the experiment, the total number of points, and
thus, the total payment resulting from the addition of the three payments
from the different parts of the experiment. This screen is followed by a
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short questionnaire. Finally, you will receive your payoff in cash and the
experiment is finished.
Thank you for your participation.
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Figure 7: Decision Screen of Risk-preference Elicitation Task
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pt
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