IZA DP No. 9251: Third-Party vs. Second-Party Control: Disentangling the Role of Autonomy and Reciprocity
revised version published as 'The hidden benefits of abstaining from control' in: Journal of Economic Behavior and Organization, 2018, 147, 1-12.
This paper studies the role of autonomy and reciprocity in explaining control averse responses in principal-agents interactions. While most of the social psychology literature emphasizes the role of autonomy, recent economic research has provided an alternative explanation based on reciprocity. We propose a simple model and an experiment to test the relative strength of these two motives. We compare two treatments: one in which control is exerted directly by the principal (second-party control); and the other in which it is exerted by a third party enjoying no residual claimancy rights (third-party control). If control aversion is driven mainly by autonomy, then it should persist in the third-party treatment. Our results, however, suggest that this is not the case. Moreover, when a third party instead of the principal exerts control, control results in a greater expected profit for the principal. The implications of these results for organizational design are discussed.