Management Accounting Section Midyear Meeting

Uncertain Gifts: How Much Does Good Intent Matter?

• In Event: Incentives and Compensation (Experimental)

Abstract

Reciprocity demands that we repay in kind what others do for us. Unfortunately, others’ well-intentioned efforts often turn into good results only after some delay, if at all, while we must decide now whether to reciprocate. We explore, in a laboratory experiment, whether subordinates reciprocate for superiors’ good intentions, even when it is yet uncertain whether these will produce the intended outcomes. Superiors can lobby for their subordinates to receive bonuses, who can provide costly effort in return. Subordinates decide on their effort before learning whether superiors’ lobbying will fructify. We find, first, reciprocity under ex-post uncertainty. Second, subordinates’ response is driven by fairness preferences, which interact with uncertainty. Third, the return on lobbying for the superior depends, other things equal, non-linearly on the initial probability of the bonus payment. Managers who seek returns on their well-intentioned actions need to consider whether these increase or decrease uncertainty for their subordinates.

Authors

• Andreas Ostermaier, University of Southern Denmark

• Peter Schaefer, Technische Universität München