Academic journal article Economic Inquiry

Who Makes a Good Leader? Cooperativeness, Optimism, and Leading-by-Example

Academic journal article Economic Inquiry

Who Makes a Good Leader? Cooperativeness, Optimism, and Leading-by-Example

Article excerpt

"Then I would look for integrity. A leader sets an example, especially a strong leader. He or she is someone on whom people ... in the organization model themselves." Peter Drucker on Picking a Leader, excerpted from "The Daily Drucker" (Drucker [2004], p. 5)

I. INTRODUCTION

One of the challenges facing leaders is how to get followers to do something they otherwise would not do, In settings where followers are tempted to free-ride on the contributions of others, the challenge is for leaders to somehow induce followers to eschew their narrowly defined personal interests to promote the wider interests of the group. Such settings are commonplace in the workplace, and also in political and military organizations. One mechanism by which a leader may influence her followers is through leading-by-example. Recent experimental research has shown that followers respond strongly to the example set by a leader (Arbak and Villeval 2007; Gachter and Renner 2003, 2007; Guth et al. 2007; Kumru and Vesterlund forthcoming; Levati, Sutter, and Van Der Heijden 2007; Moxnes and Van Der Heijden 2003; Pogrebna et al. 2009; Potters, Sefton, and Vesterlund 2007; Rivas and Sutter 2008).

In this paper, we report an experiment on a simple leader-follower game in which efficiency and self-interested behavior are in conflict. More specifically, we study a sequential voluntary contributions game where each player has an endowment and can choose how much of this to contribute to a project. Joint earnings are maximized when each player contributes their full endowment, but if subjects maximize own-earnings they will contribute nothing. We focus on the question of who makes the best leader, in terms of promoting efficient outcomes. We focus on two factors: the individual's cooperativeness, as measured by her willingness to contribute to the project when others do so, and the individual's beliefs about the cooperativeness of others. (1)

Previous experiments with this type of game show that subjects do make positive contributions, but, at the same time, contributions fall short of efficient levels. Moreover, there is substantial heterogeneity in decisions across subjects in both roles. Among followers, some maximize own-earnings but others contribute substantial amounts. Moreover, follower contributions are heavily influenced by leader contributions. In experiments with sequential prisoner's dilemmas second-movers often cooperate if the first-mover cooperates, but hardly ever if the first-mover defects (Clark and Sefton 2001), and in experiments with sequential contributions to a public good followers' contributions tend to increase with leader contributions (Gachter and Renner 2003, 2007). Thus, cooperative behavior by followers is often described as evidence of reciprocation or conditional cooperation (Croson 2007; Fischbacher, Gachter, and Fehr 2001; Frey and Meier 2004; Glockner et al. forthcoming; Keser and Van Winden 2000).

The experiments also reveal variability in leader decisions. Some leaders contribute nothing, almost certainly leading the group toward the lowest possible joint earnings. Other leaders contribute large amounts. If matched with a conditional cooperator this leads to high joint earnings, but there is also the possibility of being suckered when matched with a self-interested player. Compared with follower decisions, it is more difficult to interpret leader decisions. If a person contributes a lot in the role of leader is it because they are somehow cooperatively inclined, or simply because they are self-interested but optimistic about the prospects of meeting a cooperator? If a person contributes nothing is it because they are selfish, or are they cooperators who are pessimistic about the prospects of meeting another cooperator? And, what type of player is likely to set a better example as a leader?

To answer these questions, we present a new experiment based on a leader-follower game in which contribution decisions were elicited using the strategy method and subjects played in both roles. …

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