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Legitimacy of Control

  • Wendelin Schnedler
  • Radovan Vadovic

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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File URL: http://hdl.handle.net/10.1111/j.1530-9134.2011.00315.x
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Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 20 (2011)
Issue (Month): 4 (December)
Pages: 985-1009

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Handle: RePEc:bla:jemstr:v:20:y:2011:i:4:p:985-1009
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  1. Friebel, Guido & Schnedler, Wendelin, 2007. "Team Governance: Empowerment of Hierarchical Control," IDEI Working Papers 520, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Georg Kirchsteiger & Martin Dufwenberg, 2004. "A theory of sequential reciprocity," ULB Institutional Repository 2013/5899, ULB -- Universite Libre de Bruxelles.
  3. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 489-520, 07.
  4. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
  5. 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.
  6. Dirk Sliwka, 2003. "On the Hidden Costs of Incentive Schemes," Bonn Econ Discussion Papers bgse12_2003, University of Bonn, Germany.
  7. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November.
  8. Armin Falk & Michael Kosfeld, . "The Hidden Costs of Control," IEW - Working Papers 250, Institute for Empirical Research in Economics - University of Zurich.
  9. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
  10. Ellingsen, Tore & Johannesson, Magnus, 2006. "Pride and Prejudice: The Human Side of Incentive Theory," CEPR Discussion Papers 5768, C.E.P.R. Discussion Papers.
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