Incentives and Group Identity

47 Pages Posted: 6 Oct 2012

See all articles by Paolo Masella

Paolo Masella

University of Bologna - Department of Economics

Stephan Meier

Federal Reserve Bank of Boston; IZA Institute of Labor Economics; Columbia Business School - Management

Philipp Zahn

University of St. Gallen


This paper investigates in a principal-agent environment whether and how group membership influences the effectiveness of incentives and when incentives can have “hidden costs”, i.e., a detrimental effect. We show experimentally that in all interactions control mechanisms can have hidden costs for reasons specific to group membership. In within-group interactions control has detrimental effects because the agent does not expect to be controlled and reacts negatively when being controlled. In between-group interactions, agents perceive control more hostile once we condition on their beliefs about principal's behavior. Our finding contributes to the micro-foundation of psychological effects of incentives.

Keywords: crowding out, motivation, incentives, social preferences, social identity, trust, experiment

JEL Classification: C91, D03, Z13

Suggested Citation

Masella, Paolo and Meier, Stephan and Zahn, Philipp, Incentives and Group Identity. IZA Discussion Paper No. 6815, Available at SSRN:

Paolo Masella (Contact Author)

University of Bologna - Department of Economics ( email )


Stephan Meier

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

Philipp Zahn

University of St. Gallen ( email )

Dufourstrasse 50
St.Gallen, CH-9000

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