Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71266
Authors: 
Kessler, Judd
Leider, Stephen G.
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper: Bavioural Economics 4188
Abstract: 
A large and growing literature has demonstrated that explicit incentives, such as enforceable contracts, can lead agents to withhold effort. We investigate when this behavioral result arises. In an extensive laboratory experiment, we find that imposing control through an enforceable contract is only detrimental to principals in a special case when: (1) there is a preexisting norm that agents provide high effort; (2) control is imposed unilaterally and has an asymmetric effect on the agent; (3) control is weak (i.e. it cannot induce significant effort); and (4) the agent does not use control when acting as a principal.
Subjects: 
experiment
principal-agent problem
hidden cost of control
JEL: 
C90
J30
L20
Document Type: 
Working Paper

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