How Do Agents Incentivize Agents? Ratchet Problems in Hierarchically Nested Principal-Agent Relationships

Hisan Yang(University of Utah)

Previous research has shown that offering a bonus for achieving a performance threshold can result in workers limiting their output to prevent the performance threshold from increasing—a dilemma known as the ratchet problem. However, this phenomenon has been mainly explored in bilateral relationships. In this study, I investigate the ratchet problem within a hierarchically nested principal-agent relationship, where a branch manager acts as both an agent subject to a branch threshold set by the CEO and a principal responsible for setting individual targets for salespeople. My findings uncover an intricate game spanning multiple hierarchical levels, demonstrating how this nested structure influences both the setting and response to threshold contracts. When the branch threshold is exceeded, branch managers hesitate to adjust target difficulties for salespeople, preferring to maintain current operations. Salespeople intentionally restrict their output if the branch threshold is likely to be surpassed, as they fear that high branch performance will elevate the branch threshold, ultimately leading to higher individual targets. Consequently, branch managers and salespeople behave as if they collaborate to prevent the escalation of the branch threshold set by the CEO. These findings highlight that threshold incentives in hierarchically nested structures generate important interactions that shape strategic behaviors.

Keywords: organization design, incentives, hierarchy, agency theory, performance targets, internal organization

Gender differences in feedback response during entrepreneurial pipeline programs

Minah Park (University of Wisconsin-Madison)

Pipeline programs seek to facilitate pathways into entrepreneurship through training, education, and mentorship. These initiatives are intended to encourage individuals into
entrepreneurship who may otherwise not have considered it and provide them with the knowledge and skills that can enhance their success. We propose that these programs may
unwittingly contribute to persistent gender disparities in entrepreneurship. Individuals tend to receive feedback (e.g., grades or pitch evaluations) on their ideas or skills. Drawing on research suggesting that women and men may respond differently to performance feedback, we predict that instances of negative feedback during entrepreneurial pipeline programs decrease the intention to enter entrepreneurship among women but not men explained by changes in women’s entrepreneurial self-efficacy and evaluations of risk. We find support for this prediction across two pre-registered studies using pre-and post-survey data combined with archival data from a sample of students enrolled in introductory entrepreneurship courses (Study 1) and randomized lab experiments (Study 2). Altogether, our findings suggest that programs intended to strengthen the pipeline into entrepreneurship may be an unintended contributor to gender disparities.

Keywords: Entrepreneurship training; gender; feedback intervention theory; entrepreneurial self-efficacy; risk perception

Where we are from matters: Assessing the impact of immigrants on facility environmental performance

This study examines the impact of immigrant populations on firm environmental performance. Leveraging a longitudinal dataset of more than 11,000 manufacturing facilities in the US in which I match the Environmental Protection Agency’s (EPA) facility toxic emissions data with the location’s census immigration data, I document the negative impact of local immigrant populations on a facility’s environmental performance. Finding that the negative impact strengthens as heterogeneity among immigrants increases, I argue that this is because a more heterogeneous community is less cohesive and, hence less capable of organizing effective pressures against pollution. Further, I show that because co-nationality links create unique bonds between the facility and local immigrants, the negative relationship declines as more immigrants originate from the same home country as a facility’s parent firm. These results are robust to using an instrumental variable approach and a wide variety of alternative specifications and subsamples. These findings suggest that local community pressures may be limited in driving better environmental outcomes.

When a firm turns over a new leaf: Organizational learning from concealed and disclosed misconduct

June Kim(Emory University)

Research Question
“committing illegal acts may teach firms how to further violate the law” (Baucus & Near, 1991: 34)”
When do organizations more learn from previous errors?
How do organizations reduce subsequent errors?

Theory & Hypotheses
Hypothes is 1. An organization is more likely to engage in misconduct when it has concealed more crimes.
Hypothes is 2. An organization is less likely to engage in misconduct when its previous crimes have been more disclosed.
Hypothes is 3. An organization is more likely to engage in misconduct when other organizations have concealed more crimes.
Hypothes is 4. An organization is less likely to engage in misconduct when other organizations ’ crimes have been more disclosed.