Faculty of Economics and Business Administration Publications Database

The Hidden Costs of Control

Falk, Armin
Volume: 96
Number: 5
Pages: 1611 - 1630
Month: December
ISSN-Print: 0002-8282
Link External Source: Online Version
Year: 2006
Keywords: Chief Executives; Contracts; Incentives; Motivation; Switzerland
Abstract: We analyze the consequences of control on motivation in an experimental principalagent game, where the principal can control the agent by implementing a minimum performance requirement before the agent chooses a productive activity. Our results show that control entails hidden costs since most agents reduce their performance as a response to the principal?s controlling decision. Overall, the effect of control on the principal?s payoff is nonmonotonic. When asked for their emotional perception of control, most agents who react negatively say that they perceive the controlling decision as a signal of distrust and a limitation of their choice autonomy.