IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp3013.html
   My bibliography  Save this paper

Legitimacy of Control

Author

Listed:
  • Schnedler, Wendelin

    (University of Paderborn)

  • Vadovic, Radovan

    (Carleton University)

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," IZA Discussion Papers 3013, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3013
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp3013.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    2. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
    3. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
    4. Simon G�chter & Arno Riedl, "undated". "Moral Property Rights in Bargaining," IEW - Working Papers 113, Institute for Empirical Research in Economics - University of Zurich.
    5. Herbert Gintis, 2000. "Strong Reciprocity and Human Sociality," UMASS Amherst Economics Working Papers 2000-02, University of Massachusetts Amherst, Department of Economics.
    6. Gary Charness & David I. Levine, 2000. "When are Layoffs Acceptable? Evidence from a Quasi-Experiment," ILR Review, Cornell University, ILR School, vol. 53(3), pages 381-400, April.
    7. Sliwka, Dirk, 2003. "On the Hidden Costs of Incentive Schemes," Bonn Econ Discussion Papers 12/2003, University of Bonn, Bonn Graduate School of Economics (BGSE).
    8. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
    9. Tyler Tom, 2008. "Psychology and Institutional Design," Review of Law & Economics, De Gruyter, vol. 4(3), pages 801-887, December.
    10. Seabright Paul B, 2009. "Continuous Preferences and Discontinuous Choices: How Altruists Respond to Incentives," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-28, April.
    11. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    12. Matteo Ploner & Katrin Schmelz & Anthony Ziegelmeyer, 2010. "Hidden Costs of Control: Three Repetitions and an Extension," Jena Economics Research Papers 2010-007, Friedrich-Schiller-University Jena.
    13. Friebel, Guido & Schnedler, Wendelin, 2011. "Team governance: Empowerment or hierarchical control," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1), pages 1-13.
    14. David J. Cooper, 1999. "Gaming against Managers in Incentive Systems: Experimental Results with Chinese Students and Chinese Managers," American Economic Review, American Economic Association, vol. 89(4), pages 781-804, September.
    15. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 817-869.
    16. James Andreoni & B. Douglas Bernheim, 2009. "Social Image and the 50-50 Norm: A Theoretical and Experimental Analysis of Audience Effects," Econometrica, Econometric Society, vol. 77(5), pages 1607-1636, September.
    17. 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.
    18. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
    19. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 489-520.
    20. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
    21. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
    22. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
    23. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics.
    24. John A. List, 2007. "On the Interpretation of Giving in Dictator Games," Journal of Political Economy, University of Chicago Press, vol. 115(3), pages 482-493.
    25. Herold, Florian, 2010. "Contractual incompleteness as a signal of trust," Games and Economic Behavior, Elsevier, vol. 68(1), pages 180-191, January.
    26. Simon Gächter & Arno Riedl, 2005. "Moral Property Rights in Bargaining with Infeasible Claims," Management Science, INFORMS, vol. 51(2), pages 249-263, February.
    27. Gary Charness & Martin Dufwenberg, 2006. "Promises and Partnership," Econometrica, Econometric Society, vol. 74(6), pages 1579-1601, November.
    28. repec:awi:wpaper:0457 is not listed on IDEAS
    29. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maroš Servátka & Steven Tucker & Radovan Vadovič, 2011. "Building Trust—One Gift at a Time," Games, MDPI, vol. 2(4), pages 1-22, September.
    2. repec:awi:wpaper:0450 is not listed on IDEAS
    3. Servátka, Maroš & Tucker, Steven & Vadovič, Radovan, 2011. "Words speak louder than money," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 700-709.
    4. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    5. von Siemens, Ferdinand A., 2013. "Intention-based reciprocity and the hidden costs of control," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 55-65.
    6. Kerschbamer, Rudolf, 2015. "The geometry of distributional preferences and a non-parametric identification approach: The Equality Equivalence Test," European Economic Review, Elsevier, vol. 76(C), pages 85-103.
    7. Simon Gaechter & Esther Kessler & Manfred Koenigstein, 2011. "The roles of incentives and voluntary cooperation for contractual compliance," Discussion Papers 2011-06, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    8. Breitmoser, Yves & Vorjohann, Pauline, 2022. "Fairness-based Altruism," Center for Mathematical Economics Working Papers 666, Center for Mathematical Economics, Bielefeld University.
    9. Barmettler, Franziska & Fehr, Ernst & Zehnder, Christian, 2012. "Big experimenter is watching you! Anonymity and prosocial behavior in the laboratory," Games and Economic Behavior, Elsevier, vol. 75(1), pages 17-34.
    10. Pikulina, Elena S. & Tergiman, Chloe, 2020. "Preferences for power," Journal of Public Economics, Elsevier, vol. 185(C).
    11. Boosey, Luke & Goerg, Sebastian, 2020. "The timing of discretionary bonuses – effort, signals, and reciprocity," Games and Economic Behavior, Elsevier, vol. 124(C), pages 254-280.
    12. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
    13. Houser, Daniel & Xiao, Erte & McCabe, Kevin & Smith, Vernon, 2008. "When punishment fails: Research on sanctions, intentions and non-cooperation," Games and Economic Behavior, Elsevier, vol. 62(2), pages 509-532, March.
    14. Cox, James C. & Friedman, Daniel & Gjerstad, Steven, 2007. "A tractable model of reciprocity and fairness," Games and Economic Behavior, Elsevier, vol. 59(1), pages 17-45, April.
    15. repec:cup:judgdm:v:10:y:2015:i:5:p:442-455 is not listed on IDEAS
    16. Rebitzer, James B. & Taylor, Lowell J., 2011. "Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 8, pages 701-772, Elsevier.
    17. Ridinger, Garret, 2018. "Ownership, punishment, and norms in a real-effort bargaining experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 382-402.
    18. Rudolf Kerschbamer, 2013. "The Geometry of Distributional Preferences and a Non-Parametric Identification Approach," Working Papers 2013-25, Faculty of Economics and Statistics, Universität Innsbruck.
    19. Sandbu, Martin Eiliv, 2007. "Fairness and the roads not taken: An experimental test of non-reciprocal set-dependence in distributive preferences," Games and Economic Behavior, Elsevier, vol. 61(1), pages 113-130, October.
    20. Upravitelev, A., 2023. "Neoclassical roots of behavioral economics," Journal of the New Economic Association, New Economic Association, vol. 58(1), pages 110-140.
    21. Vicente Calabuig & Enrique Fatas & Gonzalo Olcina & Ismael Rodriguez-Lara, 2013. "Carry a big stick, or no stick at all An experimental analysis of trust and capacity of punishment," Discussion Papers in Economic Behaviour 0413, University of Valencia, ERI-CES.
    22. Christophe Heintz & Jérémy Celse & Francesca Giardini & Sylvain Max, 2015. "Facing expectations: Those that we prefer to fulfil and those that we disregard," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 10(5), pages 442-455, September.

    More about this item

    Keywords

    guilt aversion; intrinsic motivation; moral hazard;
    All these keywords.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp3013. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.