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The Lure of Authority: Motivation and Incentive E ects of Power

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  • Ernst Fehr
  • Holger Herz
  • Tom Wilkening

Abstract

Authority and power permeate political, social, and economic life but there is limited empirical knowledge about the motivational origins and consequences of authority. We experimentally study the motivation and incentive eff ects of authority in an authority-delegation game. Individuals exhibit a strong tendency to retain authority even when its delegation is in their material interest | suggesting that they value authority per se. Moreover, this tendency to hold on to authority strongly increases with individuals' degree of loss aversion, suggesting an endowment e ect with regard to au- thority. Authority also leads to a substantial over provision of e ort by the controlling party, while a large percentage of subordinates under provide e ort despite pecuniary incentives to the contrary. Thus, authority has important motivational consequences that exacerbate the inefeciencies arising from suboptimal delegation choices.

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File URL: http://www.economics.unimelb.edu.au/downloads/wp/wp10/1115.pdf
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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1115.

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Length: 48 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:mlb:wpaper:1115

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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
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Fax: +61 3 8344 6899
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Web page: http://www.economics.unimelb.edu.au
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Keywords: Organizational Behavior; Incentives; Experiments; Contracts;

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References

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  1. Gary Charness & Ramon Cobo-Reyes & Natalia Jimenez & Juan A. Lacomba & Francisco Lagos, 2012. "The Hidden Advantage of Delegation: Pareto Improvements in a Gift Exchange Game," American Economic Review, American Economic Association, vol. 102(5), pages 2358-79, August.
  2. Samuel Bowles and Herbert Gintis., 1988. "Contested Exchange: Political Economy and Modern Economic Theory," Economics Working Papers 8876, University of California at Berkeley.
  3. Mariana Blanco & Dirk Engelmann & Alexander Koch & Hans-Theo Normann, 2010. "Belief elicitation in experiments: is there a hedging problem?," Experimental Economics, Springer, vol. 13(4), pages 412-438, December.
  4. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Aghion, P. & Dewatripont, M. & Rey, P., 2004. "Transferable Control," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  6. Rabin, Matthew, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Department of Economics, Working Paper Series qt731230f8, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. Susan Athey & John Roberts, 2001. "Organizational Design: Decision Rights and Incentive Contracts," American Economic Review, American Economic Association, vol. 91(2), pages 200-205, May.
  8. John R. Hamman & George Loewenstein & Roberto A. Weber, 2010. "Self-Interest through Delegation: An Additional Rationale for the Principal-Agent Relationship," American Economic Review, American Economic Association, vol. 100(4), pages 1826-46, September.
  9. Mathias Dewatripont, 2006. "Transferable control," ULB Institutional Repository 2013/9649, ULB -- Universite Libre de Bruxelles.
  10. E. Fehr & John A. List, . "The Hidden Costs and Returns of Incentives - Trust and Trustworthiness among CEOs," IEW - Working Papers 134, Institute for Empirical Research in Economics - University of Zurich.
  11. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
  12. Datta, Somnath & Satten, Glen A., 2005. "Rank-Sum Tests for Clustered Data," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 908-915, September.
  13. Björn Bartling & Urs Fischbacher, 2008. "Shifting the Blame: On Delegation and Responsibility," TWI Research Paper Series 32, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  14. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, vol. 97(4), pages 1407-1418, September.
  15. Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1133-1165, November.
  16. Dirk Sliwka, 2001. "On the Costs and Benefits of Delegation in Organizations," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 568-, December.
  17. Lucas C. Coffman, 2011. "Intermediation Reduces Punishment (and Reward)," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 77-106, November.
  18. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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Citations

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Cited by:
  1. Audretsch, David B. & Leyden, Dennis P. & Link, Albert N., 2012. "Universities as Research Partners in Publicly Supported Entrepreneurial Firms," Working Papers 12-2, University of North Carolina at Greensboro, Department of Economics.
  2. F. Landini, 2012. "The Evolution of Control in the Digital Economy," Economics Department Working Papers 2012-EP03, Department of Economics, Parma University (Italy).
  3. Fabio Landini, 2012. "The Evolution of Control in the Digital Economy," Department of Economics University of Siena 655, Department of Economics, University of Siena.
  4. Lai, Ernest K. & Lim, Wooyoung, 2012. "Authority and communication in the laboratory," Games and Economic Behavior, Elsevier, vol. 74(2), pages 541-560.
  5. Brice Corgnet & Roberto Hernán-González, 2011. "Don't Ask Me If You Will Not Listen: The Dilemma of Participative Decision Making," Working Papers 11-04, Chapman University, Economic Science Institute.
  6. Jürgen Fleiß & Stefan Palan, 2012. "Of Coordinators and Dictators: A Public Goods Experiment," Working Paper Series, Social and Economic Sciences 2012-03, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
  7. Owens, David & Grossman , Zachary & Fackler , Ryan, 2012. "The Control Premium: A Preference for Payoff Autonomy," University of California at Santa Barbara, Economics Working Paper Series qt5bg845s1, Department of Economics, UC Santa Barbara.

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