Team building and hidden costs of control

•Laboratory experiment examining the interaction of two common management practices: control and team building.•Used separately, both (strong) control and team building increase employee effort.•Using both practices simultaneously, however, cause a severe hidden-costs-of-control problem.•Suggested explanation is a stronger reaction of team members to unexpectedly high control.

In a laboratory experiment, we investigate the interaction of two prominent firm strategies to increase worker effort: team building and control. We compare a team-building treatment where subjects initially play a coordination game to gain common experience (CE) with an autarky treatment where subjects individually perform a task (NCE). In both treatments, subjects then play two-player control games where agents provide costly effort and principals can control to secure a minimum effort. CE agents always outperform NCE agents. Conditional on control, however, CE agents’ effort is crowded out more strongly, with the effect being most pronounced for agents who successfully coordinated in the team-building exercise. Differential reactions to control perceived as excessive is one explanation for our findings.