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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. Dirk Sliwka, 2003. "On the Hidden Costs of Incentive Schemes," Bonn Econ Discussion Papers bgse12_2003, University of Bonn, Germany.
  2. Ernst Fehr & Armin Falk, . "Psychological Foundations of Incentives," IEW - Working Papers 095, Institute for Empirical Research in Economics - University of Zurich.
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  4. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  5. Friebel, Guido & Schnedler, Wendelin, 2011. "Team governance: Empowerment or hierarchical control," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 1-13, April.
  6. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
  7. Gary Charness & Martin Dufwenberg, 2004. "Promises and Partnership," Levine's Bibliography 122247000000000001, UCLA Department of Economics.
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  9. Aldo Rustichini & Uri Gneezy, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
  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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