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Legitimacy of Control

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  • Wendelin Schnedler
  • Radovan Vadovic

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Abstract

What is the motivational effect of imposing a minimum effort requirement? Agents may no longer exert voluntary effort but merely meet the requirement. Here, we examine how such hidden costs of control change when control is considered legitimate. We study a principal-agent model where control signals the expectations of the principal and the agent meets these expectations because he is guilt-averse. We conjecture that control is more likely to be considered legitimate i) if it is not exclusively aimed at a specific agent or ii) if it protects the endowment of the principal. Given the conjecture the model predicts that hidden costs are lower when one of the two conditions is met. We experimentally test these predictions and find them confirmed.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp178.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 07/178.

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Length: 21 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:bri:cmpowp:07/178

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Keywords: moral-hazard; intrinsic motivation; guilt aversion;

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References

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  1. Armin Falk & Michael Kosfeld, . "The Hidden Costs of Control," IEW - Working Papers 250, Institute for Empirical Research in Economics - University of Zurich.
  2. Ernst Fehr & Armin Falk, . "Psychological Foundations of Incentives," IEW - Working Papers 095, Institute for Empirical Research in Economics - University of Zurich.
  3. Friebel, Guido & Schnedler, Wendelin, 2007. "Team Governance: Empowerment or Hierarchical Control," CEPR Discussion Papers 6575, C.E.P.R. Discussion Papers.
  4. Tore Ellingsen & Magnus Johannesson, 2008. "Pride and Prejudice: The Human Side of Incentive Theory," American Economic Review, American Economic Association, vol. 98(3), pages 990-1008, June.
  5. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 489-520, 07.
  6. Georg Kirchsteiger & Martin Dufwenberg, 2004. "A theory of sequential reciprocity," ULB Institutional Repository 2013/5899, ULB -- Universite Libre de Bruxelles.
  7. Sliwka, Dirk, 2003. "On the Hidden Costs of Incentive Schemes," IZA Discussion Papers 844, Institute for the Study of Labor (IZA).
  8. Gary Charness & Martin Dufwenberg, 2004. "Promises and Partnership," Levine's Bibliography 122247000000000001, UCLA Department of Economics.
  9. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
  10. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
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Citations

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Cited by:
  1. Gerhard Riener & Simon Wiederhold, 2011. "Costs of Control in Groups," Ifo Working Paper Series Ifo Working Paper No. 113, Ifo Institute for Economic Research at the University of Munich.
  2. Ferdinand von Siemens, 2011. "Intention-Based Reciprocity and the Hidden Costs of Control," Tinbergen Institute Discussion Papers 11-115/1, Tinbergen Institute.
  3. Paul Grout & Wendelin Schnedler, 2008. "Non-Profit Organizations in a Bureaucratic Environment," Working Papers 0474, University of Heidelberg, Department of Economics, revised Sep 2008.
  4. von Siemens, Ferdinand A., 2013. "Intention-based reciprocity and the hidden costs of control," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 55-65.
  5. Lucia Marchegiani & Tommaso Reggiani & Matteo Rizzolli, 2013. "Severity vs. Leniency Bias in Performance Appraisal: Experimental evidence," BEMPS - Bozen Economics & Management Paper Series BEMPS01, School of Economics and Management at the Free University of Bozen.
  6. Jade Wong & Andreas Ortman & Alberto Motta & Le Zhang, 2013. "Understanding Social Impact Bonds and Their Alternatives: An Experimental Investigation," Discussion Papers 2013-21, School of Economics, The University of New South Wales.
  7. Wendelin Schnedler, 2011. "You Don't Always Get What You Pay For: Bonuses, Perceived Income and Effort," German Economic Review, Verein für Socialpolitik, vol. 12(1), pages 1-10, 02.
  8. Maroš Servátka & Steven Tucker & Radovan Vadovic, 2008. "Strategic Use of Trust," Working Papers in Economics 08/11, University of Canterbury, Department of Economics and Finance.
  9. Matteo Ploner & Katrin Schmelz & Anthony Ziegelmeyer, 2010. "Hidden Costs of Control: Three Repetitions and an Extension," Jena Economic Research Papers 2010-007, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  10. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
  11. Anthony Ziegelmeyer & Katrin Schmelz & Matteo Ploner, 2012. "Hidden costs of control: four repetitions and an extension," Experimental Economics, Springer, vol. 15(2), pages 323-340, June.
  12. Ferdinand von Siemens, 2011. "Intention-Based Reciprocity and the Hidden Costs of Control," CESifo Working Paper Series 3553, CESifo Group Munich.
  13. Daniela Grieco & Marco Faillo & Luca Zarri, 2013. "Top Contributors as Punishers," Working Papers 24/2013, University of Verona, Department of Economics.
  14. Riener, Gerhard & Wiederhold, Simon, 2012. "Team building and hidden costs of control," DICE Discussion Papers 66, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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