Do Good Intentions Pay Off? Employee Responses to Well-Intended Actions with Risky Outcomes

How does a subordinate react to the superior’s well-intended action when it is not certain that it will produce the intended outcome? The risk associated with the outcome creates moral wiggle room and thus poses a threat to the gift exchange between the superior and the subordinate. In a laboratory experiment, we first find that subordinates continue to reciprocate if the outcome risk is high. Second, however, subordinates’ response to a well-intended action that increases outcome risk depends on their inequality aversion. Weakly inequality-averse subordinates repay a kind action with a kind reaction if it decreases, but not if it increases, their outcome risk, whereas strongly inequality-averse subordinates react alike in both cases. Hence, a well-intended action is less worthwhile for subordinates if it increases than if it decreases outcome risk.