The effects of perceived fairness on opportunistic behavior

The classic agency model provides the basis for a large number of organizational contracts in the contemporary business environment. However, contracting provisions based on this model may induce undesirable behavior including shifts in employee value systems. Therefore, we explore fairness as a motivator of positive behavior in the contracting environment. Managers were asked to make a cost allocation decision in which we embedded a manipulated information asymmetry (absent or present) and incentives (absent, low, or high). Results indicate that subjects' perception of the fairness of the allocation dominates the agency (monitoring and incentive) effect in determining the intent to act opportunistically. We conclude that researchers and managers should consider fairness as an important element of the opportunity-incentive-action dynamic when the need for contracting around potential agency problems arises.