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Incentives and Group Identity

Listed author(s):
  • Masella, Paolo

    ()

    (University of Sussex)

  • Meier, Stephan

    ()

    (Columbia University)

  • Zahn, Philipp

    ()

    (University of Mannheim)

This paper investigates in a principal-agent environment whether and how group membership influences the effectiveness of incentives and when incentives can have “hidden costs”, i.e., a detrimental effect. We show experimentally that in all interactions control mechanisms can have hidden costs for reasons specific to group membership. In within-group interactions control has detrimental effects because the agent does not expect to be controlled and reacts negatively when being controlled. In between-group interactions, agents perceive control more hostile once we condition on their beliefs about principal's behavior. Our finding contributes to the micro-foundation of psychological effects of incentives.

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File URL: http://ftp.iza.org/dp6815.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6815.

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Length: 47 pages
Date of creation: Aug 2012
Publication status: published in: Games and Economic Behavior, 2014, 86, 12-25
Handle: RePEc:iza:izadps:dp6815
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