You Owe Me

In many cultures and industries gifts are given in order to
influence the recipient, often at the expense of a third party.
Examples include business gifts of firms and lobbyists. In a series
of experiments, we show that, even without incentive or
in-formational effects, small gifts strongly influence the
recipient’s behavior in favor of the gift giver, in particular when
a third party bears the cost. Subjects are well aware that the gift
is given to influence their behavior but reciprocate nevertheless.
Withholding the gift triggers a strong negative response. These
findings are inconsistent with the most prominent models of social
preferences. We propose an ex-tension of existing theories to
capture the observed behavior by endogenizing the “reference group”
to whom social preferences are applied. We also show that
dis-closure and size limits are not effective in reducing the
effect of gifts, consistent with our model. Financial incentives
ameliorate the effect of the gift but backfire when available but
not provided.