Sustaining Efficient Bureaucracies: What Does Gift Exchange Theory Says?

Abstract

Some mystery altruistic phenomena in the superior-subordinate relationship in the workplace can be explained within the framework of gift exchange theory. In this paper we discuss this theory, compare its merits to the standard pay-for-performance approach, and review its fundamental ideas, results and implications.

We apply gift exchange theory to the analysis of relationships in the government sector taking into account both horizontal and vertical connections. This topic proves overwhelmingly important in light of the significant informal and implicit relationships between civil servants especially on the higher levels of the hierarchy.

The paper describes some opportunities of the gift exchange practices to make better coordination and contract efficiency in public bureaucracies. We use the market for externalities framework to demonstrate that a gift exchange can lead to a Pareto-optimum outcome when two (or more) government agencies interact horizontally.