Legitimacy of Control

29 Pages Posted: 9 Sep 2007

See all articles by Wendelin Schnedler

Wendelin Schnedler

University of Paderborn - Department of Management; IZA Institute of Labor Economics; University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

Radovan Vadovic

Instituto Tecnológico Autónomo de México (ITAM)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2007

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.

Keywords: moral hazard, intrinsic motivation, guilt aversion

JEL Classification: C7, C9, M5

Suggested Citation

Schnedler, Wendelin and Vadovic, Radovan, Legitimacy of Control (August 2007). IZA Discussion Paper No. 3013. Available at SSRN: https://ssrn.com/abstract=1012803

Wendelin Schnedler (Contact Author)

University of Paderborn - Department of Management ( email )

Warburger Str. 100
D-33098 Paderborn
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) ( email )

12 Priory Road
Bristol BS8 1TN
United Kingdom

Radovan Vadovic

Instituto Tecnológico Autónomo de México (ITAM) ( email )

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

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