Asymmetric Adjustment of Control

Abstract

In this study, I examine how principals adjust their control over agents when the economic costs of control change. Building on psychological theory, I predict that prior experience with controlling agents reinforces a principal’s belief that agents are self-interested and that they should control agents. In contrast, prior experience with not controlling agents does not reinforce a principal’s belief that agents are socially interested and that they should not control agents. Accordingly, principals should be less willing to decrease their control over agents than increase their control over agents. Results of my experiment support my prediction by exhibiting an asymmetric adjustment pattern, and it also showcases conditions under which it disappears. Overall, my study suggests that extensive experience with exercising high control over agents may cause principals to hold on to their control disproportionally.

Keywords: controls, control systems, asymmetry, beliefs, agency, dynamics, stickiness, trust

JEL Classification: C92, D91, M40, M41