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Legitimacy of Control

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  • Schnedler, Wendelin

    () (Department of Economics, University of Heidelberg)

  • Vadovic, Radovan

    () (ITAM)

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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Bibliographic Info

Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 07-61.

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Length: 27 pages
Date of creation: 05 Sep 2007
Date of revision:
Handle: RePEc:xrs:sfbmaa:07-61

Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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  1. Uri Gneezy & Aldo Rustichini, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
  2. Ernst Fehr, 2003. "Psychological Foundations of Incentives," Microeconomics 0305010, EconWPA.
  3. Sliwka, Dirk, 2003. "On the Hidden Costs of Incentive Schemes," IZA Discussion Papers 844, Institute for the Study of Labor (IZA).
  4. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
  5. Friebel, Guido & Schnedler, Wendelin, 2007. "Team Governance: Empowerment or Hierarchical Control," IZA Discussion Papers 3143, Institute for the Study of Labor (IZA).
  6. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
  7. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November.
  8. Ellingsen, Tore & Johannesson, Magnus, 2006. "Pride and Prejudice: The Human Side of Incentive Theory," CEPR Discussion Papers 5768, C.E.P.R. Discussion Papers.
  9. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 489-520, 07.
  10. 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.
  11. Armin Falk & Michael Kosfeld, . "The Hidden Costs of Control," IEW - Working Papers 250, Institute for Empirical Research in Economics - University of Zurich.
  12. 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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Cited by:
  1. Grout, Paul & Schnedler, Wendelin, 2008. "Non-Profit Organizations in a Bureaucratic Environment," Sonderforschungsbereich 504 Publications 08-17, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. 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).
  3. Ferdinand von Siemens, 2011. "Intention-Based Reciprocity and the Hidden Costs of Control," CESifo Working Paper Series 3553, CESifo Group Munich.
  4. 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.
  5. 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.
  6. Ferdinand von Siemens, 2011. "Intention-Based Reciprocity and the Hidden Costs of Control," Tinbergen Institute Discussion Papers 11-115/1, Tinbergen Institute.
  7. 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.
  8. 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.
  9. 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.

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