How altruistic is indirect reciprocity? - Evidence from gift-exchange games in the lab

Indirect reciprocity involves human cooperation, where one agent rewards or punishes another agent for behaving kindly or unkindly towards a third party. This paper analyzes the question of what drives indirect reciprocity: Does the agent reward or punish because she (altruistically) cares about the third party? Or does she take the other agent's behavior as a signal of how the latter would treat her if they met? To measure the relative importance of the altruism motive versus the signaling motive, we offer a theoretical framework to analyze both motives for indirect reciprocity and run a series of three-player gift-exchange games: a manager pays wages to a worker, and a coworker, before the worker (but not the coworker) can reciprocate by choosing her effort. The coworker's effort is exogenously given throughout the experiment. In three different treatments, we manipulate the worker's information on wages. We find that, when only the coworker's wage is observable, the worker's effort increases with the coworker's wage. In contrast, when the worker can observe her own wage, the coworker's wage does not affect the worker's effort. We interpret this as support for the signaling motive.