Incentives and group identity |
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| Affiliation: | 1. University of Sussex, Department of Economics, Falmer BN 19SL, UK;2. Columbia University, Graduate School of Business, 3022 Broadway, New York, NY 10027, USA;3. University of Mannheim, Department of Economics, L7 3-5, 68131 Mannheim, Germany;1. Department of Economics, University of Exeter, Rennes Drive, Streatham Court, Exeter, EX4 4PU, UK;2. Department of Quantitative Economics, University Maastricht, P.O. Box 616, 6200 MD Maastricht, The Netherlands;1. Google Research, 111 8th Avenue, New York, NY 10011, United States;2. Computer Science Department, Cornell University, Ithaca, NY 14853, United States;1. Center of Economic Research at ETH Zürich (CER-ETH), Switzerland;2. Department of Economics, Maastricht University, Netherlands |
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| Abstract: | This paper investigates in a principal–agent environment whether and how group membership influences the effectiveness of incentives and when incentives can have “hidden costs”, i.e., a detrimental effect. We show experimentally that in all interactions control mechanisms can have hidden costs for reasons specific to group membership. In within-group interactions control has detrimental effects because the agent does not expect to be controlled and reacts negatively when being controlled. In between-group interactions, agents perceive control more hostile once we condition on their beliefs about principals' behavior. Our finding contributes to the micro-foundation of psychological effects of incentives. |
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| Keywords: | Social identity Social preferences Incentives Motivation Crowding out Trust Experiment |
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