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The Hidden Costs of Control

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  • Armin Falk
  • Michael Kosfeld

Abstract

In this paper we analyze the behavioral consequences of control on motivation. We study a simple experimental principal-agent game, where the principal decides whether he controls the agent by implementing a minimum performance requirement before the agent chooses a productive activity. Our main finding is that a principal's decision to control has a negative impact on the agent's motivation. While there is substantial individual heterogeneity among agents, most agents reduce their performance as a response to the principals' controlling decision. The majority of the principals seem to anticipate the hidden costs of control and decide not to control. In several treatments we vary the enforceable level of control and show that control has a non-monotonic effect on the principal's payoff. In a variant of our main treatment principals can also set wages. In this gift-exchange game control partly crowds out agents' reciprocity. The economic importance and possible applications of our experimental results are further illustrated by a questionnaire study which reveals hidden costs of control in various real-life labor scenarios. We also explore possible reasons for the existence of hidden costs of control. Agents correctly believe that principals who control expect to get less than those who don't. When asked for their emotional perception of control, most agents who react negatively say that they perceive the controlling decision as a signal of distrust and a limitation of their choice autonomy.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 250.

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Keywords: hidden costs; control;

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Find related papers by JEL classification:
  • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
  • C9 - Mathematical and Quantitative Methods - - Design of Experiments
  • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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