Under-Delegation in Case of Pure Moral Hazard: Evidence from the Laboratory

Abstract

In case of a conflict of interest between principals and agents, laboratory experiments have demonstrated the existence of a "control premium", i.e. a willingness to accept lower expected payoffs for keeping control. We analyze delegation decisions in a pure moral hazard setting without conflicts of interest, and show that there is a pronounced tendency to under-delegation. This is in line with the literature on over-monitoring in settings with conflict of interest, and reinforces the view that a positive control premium is a widespread and robust phenomenon. Besides, we find that women are less susceptible to moral hazard, defined as the performance if working for oneself compared to working for a principal. This gender difference is not reflected in the delegation behavior of principals.