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Distrust : The Hidden Cost of Control

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dc.creator Falk, Armin
dc.creator Kosfeld, Michael
dc.date 2004
dc.date.accessioned 2013-10-16T07:10:38Z
dc.date.available 2013-10-16T07:10:38Z
dc.date.issued 2013-10-16
dc.identifier http://hdl.handle.net/10419/20456
dc.identifier ppn:390628328
dc.identifier.uri http://koha.mediu.edu.my:8181/xmlui/handle/10419/20456
dc.description We show experimentally that a principal?s distrust in the voluntary performance of an agent has a negative impact on the agent?s motivation to perform well. Before the agent chooses his performance, the principal in our experiment decides whether he wants to restrict the agents? choice set by implementing a minimum performance level for the agent. Since both parties have conflicting interests, restriction is optimal for the principal whenever the latter expects the agent to behave opportunistically. We find that most principals in our experiment do not restrict the agent?s choice set but trust that the agent will perform well voluntarily. Principals who trust induce, on average, a higher performance and hence earn higher payoffs than principals who control. The reason is that most agents lower their performance as a response to the signal of distrust created by the principal?s decision to limit their choice set. Our results shed new light on dysfunctional effects of explicit incentives as well as the puzzling incompleteness of many economic contracts.
dc.language eng
dc.relation IZA Discussion paper series 1203
dc.rights http://www.econstor.eu/dspace/Nutzungsbedingungen
dc.subject M5
dc.subject C9
dc.subject C7
dc.subject ddc:330
dc.subject trust
dc.subject distrust
dc.subject motivation
dc.subject incentives
dc.subject control
dc.subject incomplete contracts
dc.subject fairness
dc.subject Agency Theory
dc.subject Vertrauen
dc.subject Unvollständiger Vertrag
dc.subject Leistungskontrolle
dc.subject Kosten
dc.subject Theorie
dc.title Distrust : The Hidden Cost of Control
dc.type doc-type:workingPaper

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