The Effects of Contract Framing on Misconduct and Entitlement

40 Pages Posted: 14 Feb 2019 Last revised: 28 May 2019

Date Written: September 2018

Abstract

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

Suggested Citation

Nichol, Jennifer, The Effects of Contract Framing on Misconduct and Entitlement (September 2018). The Accounting Review, Forthcoming, Northeastern U. D’Amore-McKim School of Business Research Paper No. 3327655, Available at SSRN: https://ssrn.com/abstract=3327655

Jennifer Nichol (Contact Author)

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
United States

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