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Finding the Cost of Control

Author

Listed:
  • Judd Kessler
  • Stephen G. Leider
  • Judd B. Kessler

Abstract

A large and growing literature has demonstrated that explicit incentives, such as enforceable contracts, can lead agents to withhold effort. We investigate when this behavioral result arises. In an extensive laboratory experiment, we find that imposing control through an enforceable contract is only detrimental to principals in a special case when: (1) there is a preexisting norm that agents provide high effort; (2) control is imposed unilaterally and has an asymmetric effect on the agent; (3) control is weak (i.e. it cannot induce significant effort); and (4) the agent does not use control when acting as a principal.

Suggested Citation

  • Judd Kessler & Stephen G. Leider & Judd B. Kessler, 2013. "Finding the Cost of Control," CESifo Working Paper Series 4188, CESifo.
    • Handle: RePEc:ces:ceswps:_4188
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    References listed on IDEAS

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    More about this item

    Keywords

    experiment; principal-agent problem; hidden cost of control;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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