Team Production and Gift Exchange

The article ‘How to get the rich to share the Marbles’ on The New York Times in 2012 describes an interesting experiment about two children pulling roles to marbles with quite different results on three different versions. In the first one, children come out with fair split because of the game is designed to be a collaborate work. In the second version, due to the unequal initial wealth, though still being collaborate work, unfairness takes place of equal split. The third condition is even more interesting which indicates under solo work condition, split equally seems to be the last option. What this experiment illuminates the author is that to achieve equity consistently, what matters more is to ensure the procedural fairness rather than the distributive fairness. The design of the first game is similar to the gift exchange model we talked about in class, in which case workers are paid the same level salary for the same work they do (though results may vary from one another). The next two kinds of stories describe how this may not work (starting with unequal initial wealth) and an opposite model (individual production model).

It reminds me of my summer internship in SPD Bank. I was working in a team responsible for issuing new bond and before asking my mentor, I was convinced that they are paid on the essential salary plus some certain percentage of how much bond they issued every year, which is the amalgam of team production and individual production. However, what I was told is completely different from what I assumed. Their payment policy is the pure gift exchange model we talked in class. They are paid almost the same amount of salary and the only difference is that they are offered a bonus together if they can achieve certain issuing number at the end of the year. Two reasons could be mainly used to explain that. What comes first is how much bond they issued heavily depends on the power of the bank and government policy,not their individual impact. Although they are responsible for issuing bonds, the clients are based on the networking of senior managers and what they do is only about producing the product, not looking for potential clients. Even they do find some target clients on their own, it will be concluded on the power of the bank not individual efforts. Besides, I was told that in 2013, Chinese government restrict bonds issued from the banking system so tight that many banks ended with no successful issued bond at the end of the year. The second reason is more important: how much bond they issued heavily depends on the area they are assigned. There are four areas in many hometown and each of them differs in economics conditions which means the number of qualified firms are quite different. But when negotiating with target firms, what clients care about is how much bonds they issued before in total and the ranking in terms of all banks. In another words, efforts of everyone count. It is just like what described in the article, although Child A and child B get different numbers of marbles, what they get finally depends on their collaborate work. They do not have to compete with each other and instead, they are competing as a whole with teams from other banks. Under this condition, the gift exchange model is a preferred rewarding system. This also explains why many companies use this model since the aim of the company is about to choose the best of employees not to beat competitors as a whole.

However, Gift Exchange model is not the panacea to all problems may occur in management. There are always problems like free-riders and opportunism requiring solutions such as monitoring which means pretty high transaction cost. This is one of the reasons that corporations sometimes prefer individual production model.