Norms, Conformity, and Controls

Abstract:     
Results from a laboratory study show that initial-control presence determines which principles decision makers believe govern appropriate behavior. The initial presence of controls leads agents to apply a principle of self-interest in a social dilemma, while the initial absence of controls allows agents to apply a principle of social-interest. Because principles based on social-interest are inherently outward-looking, those principles also increase conformity to the observed behavior of others. The results clarify the mechanisms by which accounting controls, accounting regulations, and accounting-based performance compensation schemes can ¿crowd out¿ socially desirable behaviors, such as honesty (Hannan et al. 2006b), collaboration between firms (Christ et al. 2006), and taxpayer compliance (Feld and Frey 2005), and yields predictions that differ substantially from extant models of conformity (such as Fischer and Huddart (2007) and Davis et al. (2003)), which typically assume that pressures for conformity are independent of control strength.

Keywords: controls, conformity, social norms, crowding out, public goods

JEL Classifications: C70, C72, H26, H41, M40

Working Paper Series