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The Hidden Costs of Control

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  • Michael Kosfeld
  • Armin Falk

Abstract

We analyze the consequences of control on motivation in an experimental principalagent game, where the principal can control the agent by implementing a minimum performance requirement before the agent chooses a productive activity. Our results show that control entails hidden costs since most agents reduce their performance as a response to the principal?s controlling decision. Overall, the effect of control on the principal?s payoff is nonmonotonic. When asked for their emotional perception of control, most agents who react negatively say that they perceive the controlling decision as a signal of distrust and a limitation of their choice autonomy. (JEL D82, Z13)

Suggested Citation

  • Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  • Handle: RePEc:aea:aecrev:v:96:y:2006:i:5:p:1611-1630
    Note: DOI: 10.1257/aer.96.5.1611
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    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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