In 2006, Falk and Kosfeld analyzed the hidden costs of control in a principal-agent game. The study found that when a principal controls an agent by setting a minimum performance requirement, agents often reduce their performance, leading to lower payoffs for the principal. This effect is nonmonotonic, meaning that control can sometimes be less beneficial than trust, especially when the minimum performance level is low. However, as the minimum level increases, control becomes more effective. Agents who feel controlled perceive the decision as a signal of distrust and a limitation of their autonomy. These agents are more likely to perform poorly when controlled, even if they are intrinsically motivated. The study also found that principals who control their agents tend to have lower expectations of performance, which may lead to a self-fulfilling prophecy of distrust. The research highlights the psychological impact of control on agents' behavior and suggests that trust can be more beneficial for both parties. The findings contribute to the literature on incomplete contracts and the interaction of psychological and economic incentives. The study shows that control can have hidden costs, and that principals should consider the potential negative effects of control when designing contracts and workplace environments. The results emphasize the importance of understanding agents' motivations and the potential negative consequences of control in real-life labor relations.In 2006, Falk and Kosfeld analyzed the hidden costs of control in a principal-agent game. The study found that when a principal controls an agent by setting a minimum performance requirement, agents often reduce their performance, leading to lower payoffs for the principal. This effect is nonmonotonic, meaning that control can sometimes be less beneficial than trust, especially when the minimum performance level is low. However, as the minimum level increases, control becomes more effective. Agents who feel controlled perceive the decision as a signal of distrust and a limitation of their autonomy. These agents are more likely to perform poorly when controlled, even if they are intrinsically motivated. The study also found that principals who control their agents tend to have lower expectations of performance, which may lead to a self-fulfilling prophecy of distrust. The research highlights the psychological impact of control on agents' behavior and suggests that trust can be more beneficial for both parties. The findings contribute to the literature on incomplete contracts and the interaction of psychological and economic incentives. The study shows that control can have hidden costs, and that principals should consider the potential negative effects of control when designing contracts and workplace environments. The results emphasize the importance of understanding agents' motivations and the potential negative consequences of control in real-life labor relations.