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1761. When Reciprocity of Trust Backfires: Results of an Agent-based Simulation of Incomplete Incentive Contracts
Invited abstract in session MA-43: Simulation of organizations I, stream Agent-based Models in Management, Economic and Organisation Sciences.
Monday, 8:30-10:00Room: 99 (building: 306)
Authors (first author is the speaker)
| 1. | Friederike Wall
|
| Dept. for Controlling and Strategic Management, Alpen-Adria-Universitaet Klagenfurt |
Abstract
Incentive contracts are a primary means to align subordinates' behavior with the organization's objectives. Among the difficulties incentive contracting encounters is measuring the performance in all task elements assigned to a subordinate, which may result in incomplete contracts. Then, mutual trust among the contracting parties is crucial: with an incomplete contract, the superior has some discretion over the subordinate's rewards. Hence, the subordinate's trust in the superior affects the willingness to incur effort related to the not-contracted task elements. On the other hand, the superior's trust in the subordinate is relevant to the rewards provided.
Building on Brower et al.’s (2000) theoretical model of trust in organizations, the paper translates the situation above of incomplete incentive contracts into an agent-based simulation model to study the emergence of reciprocal trust and the performance effects thereof.
The results suggest that neither the contracting parties’ trust universally increases with the superior's propensity to reciprocate the perceived subordinates’ trust, nor does performance generally increase with higher trust levels. Among the reasons is that the superior's trust in the subordinate might be "unjustified" from the subordinate's perspective. The results indicate that intra-organizational interdependencies, in conjunction with the superior's propensity to trust, subtly affect the trust-building of the contracting parties.
Keywords
- Agent Systems
- Managerial Accounting
- Behavioural OR
Status: accepted
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