| Abstract: |
Empirical studies of the principal-agent relationship find that extrinsic
incentives work in many instances, linking rewards to performance increases
effort, but that they can also backfire, reducing effort. Intrinsic
motivation, the internal drive to work to master a skill or to improve one's
self image, is thought to be the key to whether incentives work or not. If the
incentives crowd-out intrinsic motivation, and the effect is large enough, the
net motivational effect on effort will be negative. We posit that an aversion
to being exploited, i.e. being used instrumentally for the benefit of another,
is one facet of intrinsic motivation, triggered by the combination of
high-powered incentives and egoistic principal intent, that can cause
incentives to fail. Using an experiment that provides the material
circumstances necessary for exploitation to occur, we find that agent
compliance is significantly lower for exploitative principals who use
high-powered incentives and have a financial interest to do so, compared to
neutral principals who use the same contracts but do not benefit from them. To
corroborate our interpretation of the results we show that a surveyed
"exploitation aversion" scale moderates this effect. Exploitation averse
participants are less likely to comply with the incentives than exploitation
tolerant participants when the principal signals an exploitative intent, but
they are no less likely to comply with the same incentives when the principal
is neutral. Our results have implications for the design and implementation of
incentive structures within organizations. |