Unobservable Commitment and Management Control : An Experiment

We conduct an experiment designed to investigate unobservable commitment in a management control setting with a privately informed subordinate. The experimental setting follows closely that found in Evans, Hannan, Krishan and Moser [2001] and Rankin, Schwartz and Young [2003]. In one treatment the superior makes an unobservable, but binding commitment regarding her future behavior. In the other treatment the superior reacts to the subordinate’s actions without having made a prior commitment. In both treatments the superior sends a non-binding announcement regarding her intended response. Arguments are presented for how an unobservable commitment might affect the superior’s resolve to punish undesirable behavior by the subordinate. We find that unobservable commitment weakens the superiors’ willingness to inflict costly punishment on the subordinate and, in turn, subordinates eventually learn to be more aggressive. One possible implication is in some circumstances it may be better for superiors to let their emotions have “free rein” if their goal is to convince subordinates of their willingness to retaliate against them for their unfair behavior