Abstract
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 mainly focused 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 taxrelevant 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 taxrelevant circumstances. 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. Our main innovation is the introduction of a detection probability and a penalty in case of non-compliance to a norm compliance setup that has, far, been studied mainly without fines or penalties, when comparing individual and group decisions. In line with the importance of the risk dimension, the mechanisms behind the dishonesty shift here is mainly a shift in risk tolerance of group members, in contrast to the shift in norm perception in Kocher et al (2018) In both studies, it seems that common knowledge of attitudes (towards unethical behavior and towards risk) and mutual encouragement in the pursuit of non-compliant behavior are important drivers of group shifts.
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