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A Behavioral Account Of The Labor Market: The Role Of Fairness Concerns

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Executive Summary

In this paper, the authors argue that important labor market phenomena can be better understood if one takes the inherent incompleteness and relational nature of most employment contracts and the existence of reference-dependent fairness concerns among a substantial share of the population into account. Theory shows and experiments confirms that even if fairness concerns were only to exert weak effects in one-shot interactions, repeated interactions greatly magnify the relevance of such concerns on economic outcomes.

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