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Legitimacy of Control

Author

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  • Schnedler, Wendelin

    (Department of Economics, University of Heidelberg)

  • Vadovic, Radovan

    (ITAM)

Abstract

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.

Suggested Citation

  • Schnedler, Wendelin & Vadovic, Radovan, 2007. "Legitimacy of Control," Sonderforschungsbereich 504 Publications 07-61, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:07-61
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    More about this item

    JEL classification:

    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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