Worker Empowerment and Subjective Evaluation: On Building an Effective Conflict Culture

Although conflicts typically lead to a waste of resources, organizations may still benefit from a corporate culture that tolerates or even encourages conflicts. The reason is that coordinated conflicts may help to enforce informal contracts and foster cooperation. In this paper we report results of a series of laboratory experiments designed to explore whether and under what conditions an efficiency-enhancing conflict culture can emerge. Using a principal-worker setup with subjective performance evaluation, we show that establishing a functional conflict culture is a delicate matter. If conflicts are encouraged in a careless, hands-off manner, the destructive side of conflicts is likely to dominate. To be successful a conflict culture requires a careful management of fairness norms. In our experiment we find that conflicts have positive net effects on efficiency only if an explicit code of conduct is established and conflicts are institutionalized through a grievance process. Thus, providing workers with more power may be a necessary but not sufficient condition for improving productivity when performance evaluations are subjective. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.