American Economic Review: Vol. 96 No. 5 (December 2006)
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The Hidden Costs of Control
Falk, Armin, and Michael Kosfeld. 2006. "The Hidden Costs of Control." American Economic Review, 96(5): 1611-1630.
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 principals controlling decision. Overall, the effect of control on the principals 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. (JEL D82, Z13)
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