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Monitoring your Friends, not your Foes: Strategic Ignorance and the Delegation of Real Authority

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  • Silvia Dominguez-Martinez
  • Randolph Sloof
  • Ferdinand von Siemens

Abstract

In this laboratory experiment we study the use of strategic ignorance to delegate real authority within a firm. A worker can gather information on investment projects, while a manager makes the implementation decision. The manager can monitor the worker. This allows her to better exploit the information gathered by the worker, but also reduces the worker's incentives to gather information in the first place. Both effects of monitoring are influenced by the interest alignment between manager and worker. Our data confirms the theoretical predictions that optimal monitoring depends non-monotonically on the level of interest alignment. We also find evidence for hidden costs of control and preferences for control, but these have no substantial effects on organizational outcomes.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-09/cesifo1_wp3172.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3172.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3172

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Keywords: delegation; real authority; strategic ignorance;

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References

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  1. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
  2. Strausz, Roland, 1997. "Delegation of Monitoring in a Principal-Agent Relationship," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 337-57, July.
  3. Gul, Faruk, 2001. "Unobservable Investment and the Hold-Up Problem," Econometrica, Econometric Society, vol. 69(2), pages 343-76, March.
  4. Anders U. Poulsen & Michael W. M. Roos, 2009. "Do people make strategic commitments? Experimental evidence on strategic information avoidance," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 09-01, School of Economics, University of East Anglia, Norwich, UK..
  5. Anders Poulsen & Jonathan Tan, 2007. "Information acquisition in the ultimatum game: An experimental study," Experimental Economics, Springer, vol. 10(4), pages 391-409, December.
  6. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  7. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  8. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1999. "Informal Authority in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 56-73, April.
  9. Park, Albert & Shen, Minggao, 2008. "Refinancing and decentralization: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 703-730, June.
  10. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  11. Nicolai J. Foss, 2001. "Selective Intervention and Internal HybridsInterpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization," DRUID Working Papers 01-16, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  12. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  14. George Loewenstein & Don Moore & Roberto Weber, 2006. "Misperceiving the value of information in predicting the performance of others," Experimental Economics, Springer, vol. 9(3), pages 281-295, September.
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Cited by:
  1. May Elsayyad & Kai A. Konrad, 2011. "Fighting Multiple Tax Havens," Working Papers fighting_multiple_tax_hav, Max Planck Institute for Tax Law and Public Finance.
  2. Grossman, Zachary & van der Weele, Joël, 2013. "Self-Image and Strategic Ignorance in Moral Dilemmas," University of California at Santa Barbara, Economics Working Paper Series qt0bp6z29t, Department of Economics, UC Santa Barbara.
  3. Ferdinand von Siemens, 2011. "Intention-Based Reciprocity and the Hidden Costs of Control," CESifo Working Paper Series 3553, CESifo Group Munich.
  4. Randolph Sloof & Ferdinand von Siemens, 2014. "Illusion of Control and the Pursuit of Authority," CESifo Working Paper Series 4764, CESifo Group Munich.
  5. Lai, Ernest K. & Lim, Wooyoung, 2012. "Authority and communication in the laboratory," Games and Economic Behavior, Elsevier, vol. 74(2), pages 541-560.
  6. Ferdinand von Siemens, 2011. "Intention-Based Reciprocity and the Hidden Costs of Control," Tinbergen Institute Discussion Papers 11-115/1, Tinbergen Institute.

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