RESEARCH PROPOSAL

OANA BOBIC, 10599290

March 5th, 2014

Overview
Introduction and Motivation
Implementation
Hypotheses
Data Collection
Related Literature
Limitations
References

Introduction and Motivation

Principal-agent problem: conflict of interests

Control decision and effects studied by Falk & Kosfeld

(2006)

Relevant for organizations design, but not alone

Reputation concerns are present in most cases and have

opposite effects

Do reputation concerns determine employees to

overcome control aversion?

Implementation

Two-part experiment with one-shot game of two players

First part:

principal imposes or not predetermined minimum effort

level

agent decides level of effort for each case

payoff principal: directly dependant on effort

payoff agent: initial endowment minus effort

Implementation

Second part is similar with following differences:

each player keeps role in first part, but different matching

principals are informed about opponents choice in first part

principal also decides on agents wage (initial endowment)

Information about second part given at the beginning

First part played alone as control group

Hypotheses
H1:

Effort levels will be higher in the first part

H2:

Principals will control less in the second part

H3:
in

When being controlled by the principals, agents

the control group (only first part)will have lower
effort choices than agents in the treatment
(both parts)

group
H4:
first

Agents with effort levels above average in the

part will receive higher wages in the second part

Data Collection

Experiment in Romania, in the computer laboratory of a

(chemistry) university - also depends on further
information

One person will participate only once, in only one of the

treatments

Related Literature

significantly higher (by 30%) returns to ability for

entrepreneurs than for employees

differential returns to science-oriented and social abilities

for entrepreneurs and of clerical and verbal abilities to
wage employees

that a more balanced portfolio of individual ability levels

boosts entrepreneurial, but not salary earnings

Limitations

Assume results from Falk & Kosfeld's (2006) control

groups SR10 and EX 10 hold

Laboratory experiment: lower external validity

References
Falk, A. & Kosfeld, M., 2006. The Hidden Costs of Control.
American Economic Review, 96(5), pp.16111630.
Servtka, M., 2009. Separating reputation, social
influence, and identification effects in a dictator game.
European Economic Review, 53(2), pp.197209.
Wernerfelt, B., 1988. Reputation, monitoring, and effort.
Information Economics and Policy, 3(3), pp.207218.