Keeping Self-Interest under Control: Effects of Procedural Fairness and Project Success Rate in a Cost-Reduction Context

Abstract

In this study, we investigated the effects of procedural fairness (fair and no fair) and success rate on self-interest behavior. We compared a fair procedure condition that provides detail information regarding colleagues’ cost structure and their willingness to sacrifice with an unfair condition without such information. Participants were assigned into two success rate groups: low and high. We expected that individuals who encountered a higher success rate condition were inclined toward a self-interest choice. Ultimately, we hypothesized that procedural fairness and success rate have an interaction effect on self-interest behavior. We conducted a controlled laboratory experiment to investigate individual decision process in a standard costing setting. The participants were 136 undergraduate business students enrolled in management accounting classes at three large private universities that acted to be the managers in a production department. They completed an experimental task on computer. The result of our experiment indicated a mitigating effect of procedural fairness on the individuals’ self-interest behavior once the individuals realized the pressure of cost reduction process. The findings allow concluding that both self-interest and social preferences are guiding motivational factors of individual behavior. The findings indicated that people are willing to pursue organizational goals on the expense of their personal benefits. The results also showed the process of encouraging employees to undertake projects that decrease their current benefit but potentially have future organizational payoff. However, we did not find the interaction effect between procedural fairness and success rate.