Gift exchange in the workplace

Certain altruistic phenomena in the workplace that exceed the bounds of contract theory can be explained within the framework of gift exchange theory. We discuss the application of gift exchange theory to interactions between an employer and an employee as well as between employees themselves. We emphasize the opportunities of gifts to improve coordination and contract efficiency in the workplace and argue that there exists the productive function of gifts. We use the framework of a market for externalities in order to demonstrate that given the inter-related activities of agents a gift exchange between them can lead to Pareto improvement.