Compliance in Teams - Implications of Joint Decisions and Shared Consequences

31 Pages Posted: 24 May 2018 Last revised: 22 Oct 2018

See all articles by Tim Lohse

Tim Lohse

Berlin School of Economics and Law; Max Planck Institute for Tax Law and Public Finance

Sven Simon

Max Planck Institute for Tax Law and Public Finance

Date Written: May 24, 2018

Abstract

This paper investigates the compliance behavior of teams. We address two questions: First, are teams more or less compliant than individuals? Second, are differences in compliance behavior due to team decision-making per se or due to the shared economic consequences among team members? Our experimental setting consists of a repeated income reporting task. High incomes are subject to a deduction while low incomes are exempt. Thus, subjects with a high income have a monetary incentive to non-comply. This comes at the cost of a fine if they are caught lying during the course of an audit. Treatments separate the decision-making dimension from the liability dimension. We find evidence that teams are substantially less compliant than individuals are. This drop in compliance is driven by the joint (rather than individual) liability of team members. In contrast, whether subjects make their decisions alone or as team does not influence the compliance behavior. Team decision-making is characterized by a high rate of mutual agreement among team members. Interestingly, when deciding together and being liable jointly, team members' declarations are highly correlated. Evaluating their chat protocols shows that the risk dimension of the compliance task, the monetary consequences of the report and the concept of being honest are important motivation for (non-)compliance. Our findings have implications for the design of both governance rules and enforcement policies.

Keywords: Compliance, lying, group decision, joint liability, audit, communication, laboratory experiment

JEL Classification: C92, D91, K42

Suggested Citation

Lohse, Tim and Simon, Sven, Compliance in Teams - Implications of Joint Decisions and Shared Consequences (May 24, 2018). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2018-3. Available at SSRN: https://ssrn.com/abstract=3184169 or http://dx.doi.org/10.2139/ssrn.3184169

Tim Lohse

Berlin School of Economics and Law ( email )

Badensche Strasse 50-51
Berlin, D-10825
Germany

HOME PAGE: http://www.hwr-berlin.de/en/prof/tim-lohse

Max Planck Institute for Tax Law and Public Finance

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/public_economics/research_affiliates/tim_lohse.cfm

Sven Simon (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

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