SHIRKING OR WORK MORALE - THE IMPACT OF REGULATING

Standard economics assumes that rational agents shirk, and that hey have to be disciplined by monitoring and regulating. However, under specific circumstances regulating systematically worsens workers' morale and thereby negatively affects their behavior. When a principal attributes a lower work morale to the agents than they actually have, an implicit contract is unilaterally violated and agents reduce their 'excess morale'. This reaction is theoretically and empirically well supported by the notions of reciprocity and of overjustification. The theoretical propositions are applied to a specific employment relationship but hold more generally. They are consistent with empirical observations.