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Incentives and Group Identity

  • 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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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
Date of revision:
Publication status: published in: Games and Economic Behavior, 2014, 86, 12-25
Handle: RePEc:iza:izadps:dp6815
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  1. Uri Gneezy & Stephan Meier & Pedro Rey-Biel, 2011. "When and Why Incentives (Don't) Work to Modify Behavior," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 191-210, Fall.
  2. Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2007. "Fairness and contract design," Munich Reprints in Economics 20618, University of Munich, Department of Economics.
  3. Matteo Ploner & Katrin Schmelz & Anthony Ziegelmeyer, 2010. "Hidden Costs of Control: Three Repetitions and an Extension," Jena Economic Research Papers 2010-007, Friedrich-Schiller-University Jena.
  4. Ferdinand von Siemens, 2011. "Intention-Based Reciprocity and the Hidden Costs of Control," Tinbergen Institute Discussion Papers 11-115/1, Tinbergen Institute.
  5. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  6. Tore Ellingsen & Magnus Johannesson, 2008. "Pride and Prejudice: The Human Side of Incentive Theory," American Economic Review, American Economic Association, vol. 98(3), pages 990-1008, June.
  7. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2009. "Social Connections and Incentives in the Workplace: Evidence From Personnel Data," Econometrica, Econometric Society, vol. 77(4), pages 1047-1094, 07.
  8. Eckel, Catherine C. & Grossman, Philip J., 2005. "Managing diversity by creating team identity," Journal of Economic Behavior & Organization, Elsevier, vol. 58(3), pages 371-392, November.
  9. Jordi Brandts & Gary Charness, 2011. "The strategy versus the direct-response method: a first survey of experimental comparisons," Experimental Economics, Springer, vol. 14(3), pages 375-398, September.
  10. Anthony Ziegelmeyer & Katrin Schmelz & Matteo Ploner, 2012. "Hidden costs of control: four repetitions and an extension," Experimental Economics, Springer, vol. 15(2), pages 323-340, June.
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