INCENTIVES FOR DISHONESTY: AN EXPERIMENTAL STUDY WITH INTERNAL AUDITORS |
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| Authors: | Loukas Balafoutas Simon Czermak Marc Eulerich Helena Fornwagner |
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| Affiliation: | 1. Department of Public Finance, University of Innsbruck, 6020 Innsbruck, Austria;2. Management Center Innsbruck, 6020 Innsbruck, Austria;3. Mercator School of Management, University of Duisburg-Essen, 47057 Duisburg, Germany |
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| Abstract: | We conduct an experiment with professional internal auditors and evaluate their performance and objectivity, measured as the extent to which they truthfully report the performance of other participants in a real-effort task. In line with our hypotheses, we find that incentive-based compensation increases dishonest behavior: competitive incentives lead to under-reporting of other participants' performance, while collective incentives lead to over-reporting of performance. We replicate these results with a student sample. In addition, we find that moving from an environment with objective performance evaluation toward a peer evaluation scheme reduces performance among internal auditors, but not among students.(JEL C93, M42, M52) |
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