Hidden Costs of Control Under Aligned Monetary Incentives

23 Pages Posted: 29 Jun 2015 Last revised: 16 Sep 2016

See all articles by Jason Anthony Aimone

Jason Anthony Aimone

Baylor University - Department of Economics

Luigi Butera

Copenhagen Business School

Date Written: September 1, 2016


Several experimental studies have demonstrated the importance of non-monetary preferences in determining agents' response to control and delegation when monetary incentives between agents and principals are not aligned, but little is known about how such preferences influence the principle agent relationship when monetary incentives are aligned. Using a novel principal-agent-investor game, in which control takes the form of limiting the agent's reciprocity towards an investor, we show that non-monetary preferences also generate hidden costs when principal and agent's monetary incentives are aligned. Further, we show that these costs are mitigated when control is exercised using impersonal rules (i.e. restrictions are imposed ex-ante towards all agents), as opposed to personal control (i.e. restrictions are imposed directly towards an individual). Despite the relative benefits of impersonal control mechanisms, we find that principals are less likely to restrict agents' behavior when rules are impersonal. Overall, our results speak to the benefits of impersonal hierarchical rules whenever some degree of control is necessary within a team or a firm.

Keywords: Authority, Delegation, Experiment, Principal-Agent, Reciprocity

JEL Classification: C91, D21, D82

Suggested Citation

Aimone, Jason Anthony and Butera, Luigi, Hidden Costs of Control Under Aligned Monetary Incentives (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2624085 or http://dx.doi.org/10.2139/ssrn.2624085

Jason Anthony Aimone (Contact Author)

Baylor University - Department of Economics ( email )

P.O. Box 98003
Waco, TX 76798-8003
United States

Luigi Butera

Copenhagen Business School ( email )


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