Norms, Conformity, and Controls



    1. Emory University
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    1. Cornell University. We thank the editor, Abbie Smith, and our anonymous reviewer, as well as Anne Beatty, Lynn Hannan, Gary Hecht, Jessen Hobson, Christian Hoffman, Steve Huddart, Steve Kachelmeier, Bob Libby, Bob Lipe, Marlys Lipe, Don Moser, Mark Nelson, Dave Ricchiute, Steve Salterio, Kristy Towry, Sandra Vera-Muñoz, and workshop participants at Cornell University, Michigan State University, the University of Notre Dame, Brigham Young University's Accounting Research Symposium, Emory University's Behavioral Brown Bag, the Annual Meeting of the American Accounting Association, the Management Accounting Section Mid-year Meeting, and the Nicholas Dopuch Accounting Conference for comments, and the Johnson Graduate School of Management at Cornell University and the Goizueta Business School at Emory University for financial support.
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Research in behavioral economics suggests that, in addition to their traditional incentive effects, formal control systems can influence psychological motivations. We extend this literature by demonstrating experimentally that formal controls directly influence people's sense of what behaviors are appropriate in the setting (personal norms), and indirectly alter people's tendency to conform to the behavior of those around them (descriptive norms). These effects persist even after the controls are changed, so that the effects of current controls can be strongly influenced by past control strength. Our results support those who are incorporating psychological factors into principal-agent models (such as Fischer and Huddart [2008]), and suggest that those models should be further modified to incorporate correlations between personal norms and conformity to descriptive norms.