Determinants of Budgetary Slack in the Laboratory: An Investigation of Controls for Self-Interested Behavior

49 Pages Posted: 3 Apr 2000

See all articles by Douglas E. Stevens

Douglas E. Stevens

Georgia State University - Robinson College of Business

Date Written: March 2000

Abstract

This study investigates determinants of budgetary slack using the framework of agency theory and the methods of experimental economics. A computerized, five-period experiment is designed to test the robustness of prior experimental results documenting budgeting behavior inconsistent with economic rationality and self-interest. Similar to prior experiments, pay scheme and information asymmetry are manipulated. In addition, a personality questionnaire and several questions on an exit questionnaire are included to test the effects of reputation and ethical concerns on budgetary slack. A two-way analysis of variance with pay scheme and information asymmetry as factors finds a significant effect for pay scheme, information asymmetry, and their interaction. By controlling social interactions and increasing subject experience, this study is able to document slack levels closer to agency predictions than prior experimental studies. Nevertheless, subjects given the slack-inducing pay scheme are found to restrict the amount of slack in their budgets below 100% (36% to 60% on average) and subjects given the truth-inducing pay scheme are found to build a small but significant amount of slack under most experimental conditions (3.2% to 4% on average). A regression analysis with non-pecuniary factors added to the model finds that budgetary slack is also reduced by reputation concerns, ethical concerns, and a measure of ethical responsibility from the personality questionnaire. This study is able to explain more of the variance in slack than prior studies using traditional agency variables alone.

JEL Classification: M40, M46, J33, D82, L14, D64, C91

Suggested Citation

Stevens, Douglas E., Determinants of Budgetary Slack in the Laboratory: An Investigation of Controls for Self-Interested Behavior (March 2000). Available at SSRN: https://ssrn.com/abstract=219131 or http://dx.doi.org/10.2139/ssrn.219131

Douglas E. Stevens (Contact Author)

Georgia State University - Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
404-413-7212 (Phone)
404-413-7203 (Fax)

HOME PAGE: http://robinson.gsu.edu/profile/douglas-e-stevens/

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