IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_4188.html
   My bibliography  Save this paper

Finding the Cost of Control

Author

Listed:
  • Judd Kessler
  • Stephen G. Leider
  • Judd B. Kessler

Abstract

A large and growing literature has demonstrated that explicit incentives, such as enforceable contracts, can lead agents to withhold effort. We investigate when this behavioral result arises. In an extensive laboratory experiment, we find that imposing control through an enforceable contract is only detrimental to principals in a special case when: (1) there is a preexisting norm that agents provide high effort; (2) control is imposed unilaterally and has an asymmetric effect on the agent; (3) control is weak (i.e. it cannot induce significant effort); and (4) the agent does not use control when acting as a principal.

Suggested Citation

  • Judd Kessler & Stephen G. Leider & Judd B. Kessler, 2013. "Finding the Cost of Control," CESifo Working Paper Series 4188, CESifo.
    • Handle: RePEc:ces:ceswps:_4188
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp4188.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Dufwenberg, Martin & Gächter, Simon & Hennig-Schmidt, Heike, 2011. "The framing of games and the psychology of play," Games and Economic Behavior, Elsevier, vol. 73(2), pages 459-478.
    3. Thomas Lemieux & W. Bentley MacLeod & Daniel Parent, 2009. "Performance Pay and Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 1-49.
    4. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-755, September.
    5. Ernst Fehr & Alexander Klein & Klaus M Schmidt, 2007. "Fairness and Contract Design," Econometrica, Econometric Society, vol. 75(1), pages 121-154, January.
    6. 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.
    7. Bruno S. Frey, 1994. "How Intrinsic Motivation is Crowded out and in," Rationality and Society, , vol. 6(3), pages 334-352, July.
    8. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    9. Dirk Sliwka, 2007. "Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes," American Economic Review, American Economic Association, vol. 97(3), pages 999-1012, June.
    10. Bernheim, B Douglas & Whinston, Michael D, 1998. "Incomplete Contracts and Strategic Ambiguity," American Economic Review, American Economic Association, vol. 88(4), pages 902-932, September.
    11. Frey, Bruno S & Oberholzer-Gee, Felix & Eichenberger, Reiner, 1996. "The Old Lady Visits Your Backyard: A Tale of Morals and Markets," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1297-1313, December.
    12. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    13. Frey, Bruno S, 1993. "Does Monitoring Increase Work Effort? The Rivalry with Trust and Loyalty," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 663-670, October.
    14. HarryG. Barkma*, 1995. "Do Top Managers Work Harder When They Are Monitored?," Kyklos, Wiley Blackwell, vol. 48(1), pages 19-42, February.
    15. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
    16. Samuel Bowles & Sandra Polania-Reyes, 2012. "Economic Incentives and Social Preferences: Substitutes or Complements?," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 368-425, June.
    17. Christoph Vanberg, 2008. "Why Do People Keep Their Promises? An Experimental Test of Two Explanations -super-1," Econometrica, Econometric Society, vol. 76(6), pages 1467-1480, November.
    18. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    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. Jared Rubin & Anya Samek & Roman Sheremeta, 2016. "Incentivizing Quantity and Quality of Output: An Experimental Investigation of The Quantity-Quality Trade-Off," Artefactual Field Experiments 00438, The Field Experiments Website.
    2. Claudia Keser & Andreas Markstädter & Martin Schmidt, 2014. "Mandatory minimum contributions, heterogeneous endowments and voluntary public-good provision," CIRANO Working Papers 2014s-47, CIRANO.
    3. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
    4. Keser, Claudia & Markstädter, Andreas & Schmidt, Martin, 2014. "Mandatory minimum contributions, heterogenous endowments and voluntary public-good provision," University of Göttingen Working Papers in Economics 224, University of Goettingen, Department of Economics.
    5. Jared Rubin & Anya Samek & Roman M. Sheremeta, 2018. "Loss aversion and the quantity–quality tradeoff," Experimental Economics, Springer;Economic Science Association, vol. 21(2), pages 292-315, June.
    6. Volker Benndorf & Holger A. Rau & Christian Sölch, 2019. "Gender Differences In Motivational Crowding Out Of Work Performance," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 206-226, January.
    7. Kvaløy, Ola & Nieken, Petra & Schöttner, Anja, 2015. "Hidden benefits of reward: A field experiment on motivation and monetary incentives," European Economic Review, Elsevier, vol. 76(C), pages 188-199.
    8. Michèle Belot & Marina Schröder, 2016. "The Spillover Effects of Monitoring: A Field Experiment," Management Science, INFORMS, vol. 62(1), pages 37-45, January.
    9. Masella, Paolo & Meier, Stephan & Zahn, Philipp, 2014. "Incentives and group identity," Games and Economic Behavior, Elsevier, vol. 86(C), pages 12-25.
    10. Armin Falk & Michael Kosfeld, "undated". "Distrust - The Hidden Cost of Control," IEW - Working Papers 193, Institute for Empirical Research in Economics - University of Zurich.
    11. Agnès Festré & Pierre Garrouste, 2015. "Theory And Evidence In Psychology And Economics About Motivation Crowding Out: A Possible Convergence?," Journal of Economic Surveys, Wiley Blackwell, vol. 29(2), pages 339-356, April.
    12. Erte Xiao & Howard Kunreuther, 2016. "Punishment and Cooperation in Stochastic Social Dilemmas," Journal of Conflict Resolution, Peace Science Society (International), vol. 60(4), pages 670-693, June.
    13. Thomas A. Rietz & Eric Schniter & Roman M. Sheremeta & Timothy W. Shields, 2018. "Trust, Reciprocity, And Rules," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1526-1542, July.
    14. Erkal, Nisvan & Wu, Steven Y. & Roe, Brian E., 2014. "Strategic Incomplete Contracts: Theory and Experiments," IZA Discussion Papers 8704, Institute of Labor Economics (IZA).
    15. Luigino Bruni & Vittorio Pelligra & Tommaso Reggiani & Matteo Rizzolli, 2020. "The Pied Piper: Prizes, Incentives, and Motivation Crowding-in," Journal of Business Ethics, Springer, vol. 166(3), pages 643-658, October.
    16. 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.
    17. Herold, Florian, 2010. "Contractual incompleteness as a signal of trust," Games and Economic Behavior, Elsevier, vol. 68(1), pages 180-191, January.
    18. Keser, Claudia & Markstädter, Andreas & Schmidt, Martin, 2017. "Mandatory minimum contributions, heterogeneous endowments and voluntary public-good provision," Games and Economic Behavior, Elsevier, vol. 101(C), pages 291-310.
    19. Kajackaite, Agne & Werner, Peter, 2015. "The incentive effects of performance requirements – A real effort experiment," Journal of Economic Psychology, Elsevier, vol. 49(C), pages 84-94.
    20. Judd B. Kessler & Stephen Leider, 2012. "Norms and Contracting," Management Science, INFORMS, vol. 58(1), pages 62-77, January.

    More about this item

    Keywords

    experiment; principal-agent problem; hidden cost of control;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

    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:ces:ceswps:_4188. 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: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.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.