Procedural Fairness and the Cost of Control

Abstract

A large and growing literature has demonstrated that imposing control on agents has the potential to backfire, leading agents to withhold effort. Consistent with principles of procedural fairness, we find that the way in which control is imposed—in particular whether control is imposed symmetrically on both principals and agents and whether both parties have a say in whether control is imposed—affects how agents respond to control. In our setting, control leads agents to withhold effort only when procedural fairness concerns are ignored and control is imposed unilaterally with an asymmetric effect on the agent. (JEL C7, C9, L2, M5)