Effects of personal responsibility and rewards on escalation of commitments in new product context
Contractor, Sunil Harishbhai
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The Escalation of Commitment (EC) to a new product development (NPD) project is aptly characterized as “throwing good money after bad money” because the continuation of a failing course wastes scarce resources and precludes the opportunity of investing in alternate projects. Many studies have enhanced our understanding of EC. The focus of these studies is to explain EC in behavioral terms. In addition to explaining behavior, studies on EC should focus on understanding psychological aspects associated with EC in order to provide insights concerning the processes that guide managers’ behavior. The extant research on EC suggests that managers’ perception of personal responsibility to initiate a NPD project is an antecedent of EC. However, we don’t know which psychological components of commitment are escalated. Furthermore, we don’t know when (i.e. NPD outset or post failure) these components are escalated. Researchers suggest self-justification theory as a rationale for EC to NPD when a manager is personally responsible for initiating the NPD project. Self-justification theory employs a behavioral commitment view. This view suggests that the effects of personal responsibility to initiate a project on future behavior and attitudes towards the project are reduced when rewards are associated with the personal responsibility. In fact, under the title of “Reverse Incentive Effect,” a parallel stream of research exists to explain a counterintuitive effect in which a smaller reward produces a higher effect than a larger reward. However, we don’t know which components of commitments are associated with the reverse incentive effect. The objective of this dissertation is to identify which components of commitments are escalated, when are the components escalated and which components of the commitment are involved in the reverse incentive effect. Consistent with the experimental method in EC, a 2x2 experiment design is employed in which the independent variables are personal responsibility to initiate NPD project and reward. The results of this experiment support my hypotheses and suggests 1) a differential effect of interaction between personal responsibility to initiate project and reward on components of psychological commitment at the outset of NPD project, and 2) change in the effects of interaction between the personal responsibility and rewards on the components upon potential NPD failure. Based on the empirical findings theoretical and managerial implications as well as possible future research, are discussed.