IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

On Social Identity, Subjective Expectations, and the Costs of Control

  • Gerhard Riener


    (GSBC-EIC - The Economics of Innovative Change, University of Jena)

  • Simon Wiederhold


    (GSBC-EIC - The Economics of Innovative Change, University of Jena)

Controlling employees can have severe consequences in situations that are not fully contractible. However, the perception of control may be contingent on the nature of the relationship between principal and agent. We, therefore, propose a principal-agent model of control that takes into account social identity (in the sense of Akerlof and Kranton, 2000, 2005). From the model and previous literature, we conclude that a shared social identity between the principal and agent has both a cognitive, that is, belief-related, and a behavioral, that is, performance-related, dimension. We test these theoretical conjectures in a labor market experiment with perfect monitoring. Our ndings confirm that social identity has important implications for the agent's decision-making. First, agents who are socially close to the principal (in-group) perform, on average, more on behalf of the principal than socially distant (no-group) agents. Second, social identity shapes the agent's subjective expectations of the acceptable level of control. In-group agents expect to experience less control than no-group agents. Third, an agent's reaction to the monitoring level she eventually faces also depends on social identity. If the experienced level of control is lower than the expected control level, that is, the agent faces a positive sensation, the increase in performance is less pronounced for in-group agents than for no-group agents. In the case of a negative sensation, however, in-group agents react stronger than no-group agents. Put differently, being socially distant from the principal amplies the performance-enhancing effect of a positive control surprise and mitigates the detrimental performance effect of a negative surprise.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Friedrich-Schiller-University Jena in its series Jena Economic Research Papers with number 2011-035.

in new window

Date of creation: 22 Aug 2011
Date of revision:
Handle: RePEc:jrp:jrpwrp:2011-035
Contact details of provider: Postal: Carl-Zeiss-Strasse 3, 07743 JENA
Phone: +049 3641/ 9 43000
Fax: +049 3641/ 9 43000
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Gill, David & Prowse, Victoria L., 2011. "A Novel Computerized Real Effort Task Based on Sliders," IZA Discussion Papers 5801, Institute for the Study of Labor (IZA).
  2. Dickinson, David L. & Villeval, Marie Claire, 2004. "Does Monitoring Decrease Work Effort? The Complementarity Between Agency and Crowding-Out Theories," IZA Discussion Papers 1222, Institute for the Study of Labor (IZA).
  3. Simon Gaechter & Elke Renner, 2010. "The effects of (incentivized) belief elicitation in public goods experiments," Discussion Papers 2010-12, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  4. Ouchi, William, 1981. "Theory Z: How American business can meet the Japanese challenge," Business Horizons, Elsevier, vol. 24(6), pages 82-83.
  5. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Trust in Large Organizations," NBER Working Papers 5864, National Bureau of Economic Research, Inc.
  6. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. George A. Akerlof & Rachel E. Kranton, 2005. "Identity and the Economics of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 9-32, Winter.
  8. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences.
  9. Charness, Gary & Frechette, Guillaume R & Kagel, John H, 2002. "How Robust is Laboratory Gift Exchange?," University of California at Santa Barbara, Economics Working Paper Series qt8qq4k3ph, Department of Economics, UC Santa Barbara.
  10. 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.
  11. Yan Chen & Sherry Xin Li, 2009. "Group Identity and Social Preferences," American Economic Review, American Economic Association, vol. 99(1), pages 431-57, March.
  12. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  13. Ernst Fehr & Oliver Hart & Christian Zehnder, 2011. "Contracts as Reference Points--Experimental Evidence," American Economic Review, American Economic Association, vol. 101(2), pages 493-525, April.
  14. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  15. Oliver Hart & John Moore, 2006. "Contracts as Reference Points," ESE Discussion Papers 170, Edinburgh School of Economics, University of Edinburgh.
  16. Shaun P. Hargreaves Heap & Daniel John Zizzo, 2009. "The Value of Groups," American Economic Review, American Economic Association, vol. 99(1), pages 295-323, March.
  17. Steven Kelman, 2006. "Downsizing, competition, and organizational change in government: Is necessity the mother of invention?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(4), pages 875-895.
  18. repec:tpr:qjecon:v:115:y:2000:i:3:p:715-753 is not listed on IDEAS
  19. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  20. Du, Ning & Budescu, David V. & Shelley, Marjorie K. & Omer, Thomas C., 2011. "Erratum to "The appeal of vague financial forecasts" [Organizational Behavior and Human Decision Processes, 114 (2011) 179-189]," Organizational Behavior and Human Decision Processes, Elsevier, vol. 115(1), pages 143-143, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:jrp:jrpwrp:2011-035. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Pasche)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.