Influence

Do Workers Follow Their Leaders' Ethical Reporting Choices?

Our main hypothesis suggests that workers follow their leader's (ethical) reporting choice. Table 3 reports logit regressions where the dependent variable is Workers' automatic reporting, namely a dummy equal to one if a worker chooses automatic reporting, and zero if a worker chooses self-reporting. The key explanatory variable is Leader's automatic reporting, a dummy equal to one for the leader's automatic reporting, and zero for self-reporting. In Columns (1)–(2), the model is estimated on the full sample, i.e., pooling leaders' voluntary and mandatory reporting treatments. In Columns (3)–(4), the model is estimated only considering the leaders' voluntary reporting treatment. In Columns (5)–(6), the model is estimated only considering the leaders' mandatory reporting treatment. In Columns (7)–(8), the model is estimated again on the full sample, and it includes the interaction between the dummy for the leader's automatic reporting and the dummy for the voluntary reporting treatment (Leader's automatic reporting × Voluntary). We include round fixed effects, and in Columns (2), (4), (6), and (8) we add controls for individual characteristics (Individual controls).

Table 3 Effect of leaders on workers' reporting choices

Consistent with our hypothesis, the results indicate that a leader's automatic reporting has a positive and significant effect on the likelihood of workers' automatic reporting, albeit only when the leader's choice is made voluntarily (see the positive and statistically significant coefficients of Leader's automatic reporting in Columns 3–4, and of Leader's automatic reporting × Voluntary in Columns 7–8).

Do Individuals Make Ethical Reporting Choices When Assigned to a Leadership Role?

Theories of role modeling suggest that employees regard leaders as credible role models whose style and actions set an example of ethical standards or other desirable behaviors. As role models, leaders generally "feel" a greater social responsibility in terms of feeling obligated to adhere to ethical and legal rules, and to care about the consequences of their actions. This "feeling" can be part of the leader's self-image or self-esteem part of the leader's membership in the social category of leaders, or a mix of the two. Existing research suggests that leaders are intrinsically motivated to hold positive social identities, and opting for ethical choices is a straightforward way to instantiate such an identity. Those arguments suggest that subjects who are assigned to the role of leaders may opt for the ethical reporting choice (i.e., automatic reporting). To explore this line of argument, we estimated logit regressions - reported in Table 4 - that compare subjects' reporting choices in the individual setting with those in the group setting, i.e., once those subjects are assigned to the role of leader. The dependent variable - Automatic reporting (voluntary) - is a dummy equal to one for voluntary automatic reporting, and zero for voluntary self-reporting. The main explanatory variable (Leader in the group setting) is a dummy equal to one if a subject is assigned to the role of a leader in the group setting, and zero for the individual setting (i.e., without this role). We include round fixed effects, and in Column (2) we add controls for individual characteristics (Individual controls). The estimates show the coefficient of the dummy Leader in the group setting is not statistically significant. Hence, individuals assigned to the role of leaders in a group setting are not more likely to choose automatic reporting.

Table 4 Leaders' reporting choices

Does Leaders' Incentive Power Influence Workers' Reporting Choices?

We investigate whether the possibility of leaders to provide economic incentives (i.e., decide how to split the group payoff among workers) reinforces the impact of leaders' reporting choices on workers' behavior. Recall that workers do not receive any feedback between rounds about their leaders' punishment or reward decisions, but they know whether their leaders are provided with that incentive power.

Table 5 reports logit regressions on reporting choices in the group setting where the dependent variable is Workers' automatic reporting, as in Table 3 (a dummy equal to one if a worker chooses automatic reporting, and zero if a worker chooses self-reporting). The main explanatory variable - Leader's automatic reporting (voluntary) - is a dummy equal to one for the leader's voluntary automatic reporting, and zero for voluntary self-reporting. Out of the total of 180 workers, we use 60 workers (across the ten rounds, i.e., 600 obs.) corresponding to the treatments in which the leader's reporting method is voluntarily chosen. Among those, we separately estimate the model for the treatment in which the leader can punish the workers ("With punishment;" Columns 1–2) and the treatment in which the leader cannot do that ("Without punishment;" Columns 3–4). Recall that by punishment we mean the possibility for the leader to allocate to a given worker less than 33% of the workers' total payoff. We include round fixed effects, and in Columns (2) and (4) we add controls for individual characteristics (Individual controls).

Table 5 Effect of leaders on workers' reporting choices: the role of punishment

The results suggest that only incentive-powered leaders - who also voluntarily choose automatic reporting - exert a positive and significant effect on the likelihood of their workers choosing automatic reporting [see the positive and statistically significant coefficients of Leader's automatic reporting (voluntary) in Columns 1–2]. Overall, this finding reveals that a leader's incentive power and voluntary decision are both necessary ingredients to influence workers' ethical reporting choices.

How - and Which Type of - Leaders Use Their Incentive Power?

Our next assessment concerns how - and which type of - leaders use the incentive power. Table 6 reports logit regressions on decisions in the group setting, wherein the dependent variable Punishment is equal to one if the leader allocates to a given worker less than 33% of the workers' total payoff, and zero if the leader allocates an equal share of the workers' total payoff among workers. Values below 33% can be perceived by workers as an economic punishment. The main explanatory variable is Alignment, a dummy equal to one when the worker's reporting choice (either automatic or self-reporting) is aligned with that of the leader, and zero otherwise. Out of the total of 180 workers, we use 90 workers (across the ten rounds, i.e., 900 obs.) corresponding to the treatments in which the leader has incentive power. We control for round fixed effects and, in Column (2), individual characteristics (Individual controls). In Column (2), the number of observations is 890 (and not 900) because the field of study perfectly predicts the dependent variable in ten instances, which are thus excluded.

Table 6 Reporting alignment and leaders' punishment decisions

The results indicate a negative and significant effect of alignment on the likelihood of punishment. In other words, leaders exercise their incentive power to punish workers who do not follow them in their reporting choice.

Next, we investigate which type of misalignment leaders are willing to punish. Table 7 reports the same logit regressions of Table 6, but now separately estimating punishment decisions for each of the two leader's reporting methods (either voluntary or mandatory). In Column (1), we consider the instances of leader's self-reporting (and thus alignment means that the workers also choose self-reporting). In Column (2), we consider the instances of leader's automatic reporting (and thus alignment means that the workers also choose automatic reporting). We include round fixed effects and individual characteristics (Individual controls). The sum of the observations in Columns (1)–(2) should amount to 900, i.e., the observations used in Table 6. Nonetheless, given that the field of study perfectly predicts the dependent variable in 42 instances, the sum of the observations in the two columns is 858.

Table 7 Type of reporting alignment and leaders' punishment decisions

Interestingly, our results indicate that the greater likelihood of punishment due to reporting misalignment is significant only when the leader chooses self-reporting and workers choose automatic reporting (Column 1).

We explore this result in Fig. 2, which plots the predicted probability of punishment due to reporting misalignment between leaders and workers along with the size of the group outcome (i.e., the sum of the die-rolling reported outcomes in a group). The solid line shows the predicted probability in the case of misalignment, whereas the dotted line shows the predicted probability in the case of alignment. The areas surrounding each line show the 5% confidence intervals. Recall that a larger group payoff (derived from realizations of five or six in the die-rolling task) provides a stronger indication of cheating.

Fig. 2 Punishment decisions by reporting alignment and group-level payoff. a Results pooled across reporting methods. b Results by leader's reporting method

Figure 2a shows that the probability of punishment is higher in the case of reporting misalignment (solid lines) between workers and leaders (compared with reporting alignment). This predicted probability is at its highest value for the lowest size of the group payoff, and it decreases as the group payoff increases. Figure 2b reveals that this result is especially marked when the leader chooses or is assigned to self-reporting as opposed to automatic reporting.

Does Leaders' Ethical Reporting Influence Workers' Cheating Behavior?

Finally, we focus on workers' cheating behavior when they choose self-reporting. Although we cannot observe the true die-rolling reported result, we can statistically detect the degree of misreporting by comparing the observed occurrence of each realization with the theoretical occurrence derived from a uniform distribution. Recall that subjects self-report the result of their die-rolling task, which ranges between one and six. The probability of each number is 1/6, and thus in the absence of cheating each realization should display the same frequency of around 17%. However, we find that subjects in the individual setting report a value of six in 40.8% of the cases. In the group setting, this fraction is as high as 50.3%.

Focusing on the group setting, we explore the workers' frequency for each realization of their die rolls. Figure 3 provides the empirical distribution of each die-rolling result (from one to six) by the workers depending on their leader's reporting method (either voluntary or mandatory). The values on the y axis represent the percentage of realizations. The dotted line reports the benchmark uniform distribution where the probability of each die-rolling result is 16.6%. As shown, there is substantial cheating among workers. Realizations at the low end of the distribution are heavily under-reported, while the value of six is reported five times more frequently than it should be. Importantly, by looking at workers' reporting for a given leader's reporting method, we find that the frequency of six is higher in the presence of leaders' self-reporting compared with automatic reporting. Collectively, these results suggest that while there is substantial cheating in our experiment, leaders' automatic reporting helps to spur a slightly more ethical behavior among workers.

Fig. 3 Workers' cheating behavior by leader's reporting method

These insights are confirmed by the logit regressions reported in Table 8. The dependent variable is Highest realization, a dummy equal to one if the worker reports the highest realization (i.e., six) in the die-rolling task (which is disproportionally represented in our sample and thus reflects cheating behavior among workers), and zero for all other realizations. The key explanatory variable is Leader's automatic reporting, which is equal to one for leaders' automatic reporting, and zero for leaders' self-reporting (either voluntary or mandatory). We use the total of 180 workers (across the ten rounds, i.e., 1800 observations).

Table 8 Effect of leaders on workers' cheating behavior

The results indicate that leaders' automatic reporting (either voluntary or mandatory) has a negative and significant effect on the likelihood of workers choosing self-reporting to engage in cheating. In additional analyses, we find that this result is robust to estimating the regression separately for leaders' voluntary or mandatory reporting.