Abstract
• Unethical behavior is usually associated with the risk of negative consequences. • However, the experimental literature so far focused mainly on environments that involve no fines. • We study ethical behavior of individuals and small groups in a compliance setting. • Our results show that groups are clearly less compliant than individuals. • The risk of being detected is the most important aspect in the group communication. Unethical behavior in organizations is usually associated with the risk of negative consequences for the organization and for the involved managers if being detected. The existing experimental literature in economics has so far focused mainly on the analysis of unethical behavior in environments that involve no fines or similar monetary consequences. In the current paper, we use a tax compliance framework to study (un-)ethical behavior of individuals and small groups. Our results show that groups are clearly less compliant than individuals. The risk of being detected is the most important aspect in the group communication process when deciding on compliance.
Highlights
Consider an organization that decides on the implementation of provisions of labor laws or on the treatment of tax-relevant circumstances
The most severe cases make it to the public, but there is a continuum of norm violations in terms of severity and impact, meaning that norm-violating behavior in organization is a problem on many levels
We analyze the foundations of group decisions when there is a tradeoff between following a moral norm, resulting in earning smaller profits, and violating the norm, leading to higher profits, with a chance that the norm violation is detected and causing punishment
Summary
Consider an organization that decides on the implementation of provisions of labor laws or on the treatment of tax-relevant circumstances Such decisions often involve a tradeoff between following the provisions tightly, or deviating from the provisions in relevant aspects to increase profits at the risk of getting detected and having to pay fines or face other forms of punishment. Three elements of such decisions in organizations are crucial: compliance with a (moral) norm, risk of detection, and joint decision making in a group or team.
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