Formal controls are essential for well-functioning organizations, but research finds that they can negatively impact controlled individuals' (agents) behavior. Specifically, controls can reduce agents' intrinsic motivation to exert effort for employers (principals). In this dissertation, I investigate how agents' beliefs about the intentionality of control influence their response to it. Further, I examine whether principals anticipate agents' responses and adjust their risk-taking behavior accordingly.
Using three interactive experiments, I examine the effects of control intentionality on agents' effort and principals' risk-taking. In the first experiment, I focus on the effects of intentions and control, without permitting principals to transfer resources to agents. In the second and third experiments, principals take risk by entrusting resources to agents. Further, in the third experiment, I investigate the beliefs that influence participants' actions.
In each experiment, I manipulate agents' beliefs about control intentionality by varying the control source across three conditions. In the first condition, principals endogenously impose control, which can clearly be perceived as a distrusting signal. In the second condition, control is imposed exogenously by a computer and therefore cannot be interpreted negatively. In the third condition, the control source is unclear to the agent, such that it may be imposed by the principal or computer.
I find that intentionality influences agents' response to control. Specifically, in the first experiment, when control is imposed exogenously, agents exert high effort. However, agents' effort diminishes when control can be interpreted as a negative signal, even if the source is ambiguous. Moreover, when the principal unambiguously imposes control, agents exert less effort than if no control is imposed. The second experiment reveals that this dysfunctional effect of intentional control persists when principals entrust resources to agents.
Despite these negative effects, principals prefer to impose control. However, principals appear to accurately predict how control intentionality affects agents and take more risk when they have chosen not to impose control or when it is imposed by an exogenous or ambiguous source than when they have intentionally imposed it. Results from the second and third experiments indicate that principals' risk-taking is influenced by their beliefs about agent opportunism.