Research in human economic behavior is most surprising when it is counterintuitive, such as the well-known result that — under certain conditions — minimum-wage laws and rent controls can make low-wage workers and renters worse off.
The result of economic research can also be headslappingly obvious, namely when it confirms our most basic observations. A recent example for exactly that phenomenon is a paper by economics professors Ulrike Malmendier (Berkeley) and Klaus M. Schmidt (Munich).
In the playfully titled study “You owe me” (available at: http://bit.ly/VbJkls), the two researchers set out to explore what they call the “dark side of pro-social behavior” in gift exchanges.
There exists an abundance of studies that show that gifts and gift exchanges can have beneficial effects by engendering cooperation and supporting efficient teamwork. In this sense, gift-giving — other than just being part of the social structure of society — also is a vehicle to influence behavior.
As the authors point out, the same mechanism could be used to the “detriment of a third party.” It won’t come as a surprise to many of us that, in this scenario, “pro-social behavior towards one person may come at the expense of another person.”
One statistic cited by the study, namely that the pharmaceutical industry “has been estimated to spend $8,000–$15,000 per year on each physician in the U.S. for marketing, including luxurious dinners, conferences at attractive locations and generous honoraria” demonstrates the likely efficiency of such gift-giving.
After all, if it wouldn’t pay off, profit-maximizing companies would probably have stopped that practice a long-time ago. The study does, however, go beyond the obvious by conducting a number of well designed laboratory experiments.
Apart from the informational and incentive effect of gifts, the authors have discovered evidence for an “additional and powerful effect of the gift per se.” Accordingly, even “small gifts strongly influence the recipient’s behavior in favor of the gift giver” even when the recipients are aware the gift is intended to influence them.
Not only that, but this added effect is significantly stronger when it comes at the expense of a third party.
A field of economics that has long studied such behavior in the political marketplace, “Public Choice,” describes such activities as rent-seeking.
A common form of rent-seeking is the combination of a few interested parties (those could be environmental groups or business in a certain industry), which then lobbies on behalf of a policy that would further their goals while having a large and widely-dispersed group of people bear the costs. Often, the costs to the individual are so small that no strong incentive exists to oppose the policy change.
What this study also adds to the discussion is the insight that common policy remedies to the “dark-side” of gift exchange may not have the intended effect. The authors test “disclosure rules” and “size limits” that are often implemented in ethics rules for politicians and government bureaucrats, and they show that neither can overcome the powerful effect to reciprocate.
Given the current fiscal-cliff discussion that has put influential lobbying groups into overdrive in the nation’s capital, this is cause for concern.
Not only are we reminded that money buys influence and access, we also learn that more detailed disclosure rules and limits on the size of gifts may not be able to curb this.
Dr. Michael Reksulak teaches economics and public finance in Georgia Southern University’s College of Business Administration. He may be reached by e-mail at mreksula@georgiasouthern.edu.