Management Accounting Section Midyear Meeting

The Ratchet Effect in Teams: The Impacts of Learning and Inequity Aversion

• In Event: Budgeting and Target Setting (Experimental)

Abstract

This study both theoretically and experimentally shows that, because of the interdependent nature of work environments, the mechanism of the ratchet effect in teams qualitatively differs from that in independent work environments. First, I theoretically proved that the ratchet effect may or may not occur in teams depending on the agents’ inequity aversion and that learning among teammates deters the ratchet effect. Then, I ran a laboratory experiment of a team production task that was designed according to the theoretical model. The results of the experiment show that the ratchet effect arises in teams. I confirm that participants’ inequity aversion levels were low enough to fall in a range for which the ratchet effect is theoretically expected to arise. The results also show that the ratchet effect is significantly mitigated when learning is present compared to when learning is absent. This result of learning implies that encouraging employees’ learning has an important indirect benefit for firms.

Author

• Mami Koyama, Kobe University