The Effects of Contract Framing on Misconduct and Entitlement
The Accounting Review, Forthcoming
40 Pages Posted: 14 Feb 2019 Last revised: 28 May 2019
Date Written: September 2018
This study examines the effects of incentive contract framing on misreporting and entitlement. I conduct a 2x2 between subjects experiment, manipulating incentive contract framing (Bonus / Penalty) and the awareness of the opportunity to misreport (Before Effort / After Effort). I predict and find that (1) penalty contracts cause a higher rate and degree of misreporting and (2) this greater misreporting occurs due to a greater sense of entitlement to the incentive funds. Collectively, this study's theory and results indicate that while penalty contracts can sometimes increase effort relative to bonus contracts, they also encourage greater dishonesty in reporting when that effort is not successful.
Keywords: contract framing, incentives, reward, penalty, rewards, penalties, bonus, misreporting, entitlement, dishonesty
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