Summary: Management Control Papers

Read the summary and the most important questions on Management Control Papers

• 3 Paper 3 (Control in a teamwork environment: The Impact of social ties on the effectiveness of mutual monitoring contracts)

• 3.2.2 Agency theory in a teamwork environment

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• What is mutual contracting?

  While the principal cannot observe the agents actions, the agents may be able to observe each other. The principal can benefit by designing incentive schemes that exploit this capability.

• How is a team defined in the experiment?

  As two individuals engaged in some type of joint production. The principal cannot observe the agents, there is no conventional measure of individual performance. The two agents can mutually monitor each other.

• 3.2.3 Vertical incentive system

• How is the general model of vertical incentive contracts comprised?

  Each agent observes the other agents action and truthfully reports it to the principal. Each agents compensation is then based on the report filed by his/her teammate. The agents are whistle-blowers who pass along to the principal any information they gather about their coworkers.

• Which critical assumptions must hold with the vertical approach?

  The vertical approach relies on the assumption that the agents will chose strategies independently, because coordination among them can undermine the reliability of their reports. 

• Of what does the wage of the agent consist off?

  Effort pay and a bonus/penalty. Effort pay depends entirely on the report of the teammate. If an agent reports that his/her teammate shirked, and that report is truthful, the agent receives a bonus. If it is false, the agent gets a bigger penalty than the bonus.

• When does verification occur in the vertical incentive system?

  Verification does only occur when one agent accuses the other of shirking?

• 3.2.4 Horizontal incentive system

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• What is the horizontal incentive system?

  A system relying on self-management and peer-based control. It does not involve reporting to the principal. The principal assumes that the agents will explicitly or implicitly coordinate their actions. Therefore the principal creates an incentive system that induces the agents to agree to the actions desired by the principal and to enforce these agreements trough the use of formal sanctions, peer pressure, or enforceable side-contracting.

• What is a fundamental issue with team-output-based pay and how is it prevented?

  A fundamental issue with team-output-based pay is social loafing (the withholding of effort as individual effort becomes less identifiable). This is prevented by relying on the ability of agents to monitor each other's efforts and to punish each other for shirking. 

• 3.2.5 Team identity

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• What changes due to a shift from an individual to a team perspective?

  The team members beliefs change about how their actions affect outcomes.

  - In a highly identified team, team members are likely to believe that they can influence outcomes trough collective versus individual actions. 

  - They will coordinate their actions and focus on joint rather than individual outcomes.

• 3.2.6 Hypotheses

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• What is the direct effect of cognitive change that defines team identity?

  Team members become more attuned to the interrelatedness of their actions, focusing on the ways in which they can jointly affect outcomes. This will lead them to choose strategies that are mutually beneficial (cooperative) in nature.