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Incentives For Dishonesty: An Experimental Study With Internal Auditors

Author

Listed:
  • Loukas Balafoutas
  • Simon Czermak
  • Marc Eulerich
  • Helena Fornwagner

Abstract

We conduct an experiment with professional internal auditors and evaluate their performance and objectivity, measured as the extent to which they truthfully report the performance of other participants in a real‐effort task. In line with our hypotheses, we find that incentive‐based compensation increases dishonest behavior: competitive incentives lead to under‐reporting of other participants' performance, while collective incentives lead to over‐reporting of performance. We replicate these results with a student sample. In addition, we find that moving from an environment with objective performance evaluation toward a peer evaluation scheme reduces performance among internal auditors, but not among students.(JEL C93, M42, M52)

Suggested Citation

  • Loukas Balafoutas & Simon Czermak & Marc Eulerich & Helena Fornwagner, 2020. "Incentives For Dishonesty: An Experimental Study With Internal Auditors," Economic Inquiry, Western Economic Association International, vol. 58(2), pages 764-779, April.
    • Handle: RePEc:bla:ecinqu:v:58:y:2020:i:2:p:764-779
    DOI: 10.1111/ecin.12878
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    Cited by:

    1. Corgnet, Brice & Martin, Ludivine & Ndodjang, Peguy & Sutan, Angela, 2019. "On the merit of equal pay: Performance manipulation and incentive setting," European Economic Review, Elsevier, vol. 113(C), pages 23-45.
    2. Kinnl, Klara & Möller, Jakob & Walter, Anna, 2023. "Borrowed Plumes:: The Gender Gap in Claiming Credit for Teamwork," Department of Economics Working Paper Series 345, WU Vienna University of Economics and Business.
    3. Sanjit Dhami, 2017. "Human Ethics and Virtues: Rethinking the Homo-Economicus Model," CESifo Working Paper Series 6836, CESifo.
    4. Kinnl, Klara & Möller, Jakob & Walter, Anna, 2023. "Borrowed Plumes: The Gender Gap in Claiming Credit for Teamwork," Department for Strategy and Innovation Working Paper Series 01/2023, WU Vienna University of Economics and Business.
    5. Stoll, Julius, 2022. "The cost of honesty: Field evidence☆," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 101(C).
    6. Martin Dufwenberg & Katja Goerlitz & Christina Gravert, 2024. "Peer Evaluation Tournaments," CEBI working paper series 24-20, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    7. Thomas Ehrmann & Aloys Prinz, 2025. "The auditing game: the dark side of the private provision of a public good," European Journal of Law and Economics, Springer, vol. 59(2), pages 329-376, April.
    8. Klara Kinnl & Jakob Möller & Anna Walter, 2023. "The Gender Gap in Claiming Credit for Teamwork," Department of Economics Working Papers wuwp345, Vienna University of Economics and Business, Department of Economics.

    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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