CLARION UNIVERSITY OF PENNSYLVANIA

The Norm of Reciprocity and Agent Conscientiousness in Business Contracts

Honors Program Senior Project
Vasbinder, Andrew 5/2/2012

Introduction Over time, suppliers and retailers form very important relationships. These relationships can take many different forms and are very critical in a firms success (Gunasekaran and Ngai, 2005). Under many circumstances, these relationships and the contracts that govern the transactions between suppliers and retailers must be adapted to changes in the business environment (Monroy and Alzola, 2005). With all the changes in todays business environment, adjusting contracts has become of utmost importance. Two factors that are critical in beginning to understand contract adjustment are the role of reciprocity norm and agent conscientiousness. I will first start by discussing the norm of reciprocity and the effect it can have on contract adjustments. There is no duty more indispensable than that of returning a kindness, says Cicero, adding that all men distrust one forgetful of a benefit (Gouldner, 1960). The previous statement more or less sums up everything about the norm of reciprocity in society. In our society, it has been instilled in us from a very young age that if someone has done you a favor then you should return the favor in the future. Reciprocity is a generalized moral norm that defines certain actions and obligations as repayments for benefits received (Gouldner, 1960). This principle isnt of any less importance in the business world. Gouldner also states that, A social unit or group is more likely to contribute to another which provides it with benefits than to one which does not. In a study performed on shoppers at an electronic store, it was found that offering a simple thank you and expressing appreciation when the shoppers walked into a store caused them to spend more money on average than shoppers who were not greeted with a

thank you and appreciation (Friedman, & Friedman, 1996). This study shows the effect of the norm of reciprocity on shoppers because they perceive the thank you and appreciation as a gift and feel the need to return the favor. Also, in another study performed, it was found that when a reciprocity manipulation was put into place participants would make a more favorable judgment towards suppliers rather than when they were more interested in shareholder value (Tangpong, & Pesek, 2007). Gouldner then points out that, Reciprocity, therefore, is a mutually gratifying pattern of exchanging goods and services. Adjusting contracts in the business world requires an extensive decision-making process. Results that were taken from a study on community standards of fairness showed the extent to which fairness impacts the ethical decision-making process. It was shown that when an explanation for a contract adjustment followed community standards of fairness caused much less resentment than if the explanation went against the communitys view of fairness (Schweitzer, & Gibson, 2008). Conscientiousness is the Big-Five personality trait most expected to be related to job performance because it is most closely related to such characteristics as being persistent, planful, careful, responsible, and hardworking, which are all characteristics that influence the completion of job tasks (Barrick, & Mount, 1991). Barrick and Mount also found in a study that conscientiousness was a valid predictor of this for all occupation groups that they studied. These findings were also backed up by other research done by Hurtz and Donovan. They reported that conscientiousness is generally a valid predictor of job performance and it represents the primary and possibly the sole dimension for use in personnel selection (Hurtz, & Donovan, 2000). It is also pointed out in the same article that not only is conscientiousness logically related to job performance, it intuitively makes sense because of the characteristics

that conscientious individuals possess. Conscientiousness is also important not just in determining personnel; it can also weigh in on decision-making. Individuals that are more conscientious tend to act less opportunistically towards others, whereas individuals that are less conscientious tend to take more advantage of others (Fong). The roles of reciprocity norm and agent conscientiousness both have very definitive roles in contract adjustments. They can affect the adjustment individually and also with an interaction between both roles.

Background of the Problem In the business world, there are contracts governing just about every transaction between companies. The majority of contracts are formed between a selling company and a buying company. These exchange relationships grow and vary over time. Problems are often encountered with existing contracts and they need to be adjusted. When deciding how a contract is to be adjusted, the roles of reciprocity norm and agent conscientiousness can be very influencing factors. It is understood and instilled in our culture that if you are done a favor then you should return a favor in the future. Reciprocity norm is a social norm of give-andtake, (Gouldner, 1960). This is a powerful norm that can affect the final contract setup. Agent conscientiousness deals with the individual personality and behaviors of the contract agents. This concept means that each person has their own view of what to do in a situation, (what is right or wrong), and this view will strongly influence their decision on contract adjustment.

These two factors both have strong influences on the final contract adjustment. They can work either separately or mutually to influence the final decision.

Developing Scenario and Survey In this case, I will create a contract adjustment scenario to examine the relationship between the contract decision and the roles of reciprocity norm and agent conscientiousness. The scenario will involve a company selling a product to one of its retailers but the retailer will not be able to afford the product because of insufficient financial resources. The retailer will then ask the supplier for a special contract adjustment so that they will be able to afford the contract. In order to gauge the activity of the norm of reciprocity, the scenario will be accompanied with a set of manipulation information. The scenarios given to the control group will contain one set of manipulation information while the scenarios given to the treatment group will contain a different set of manipulation information. In order to gain information on the activity of agent conscientiousness for this scenario, the scenario will also be accompanied with a 10-item IPIP conscientiousness scale. Also included with these sections will be a section to gain biographical information on the respondents.

Scope of the Project This project will test two hypotheses dealing with the norm of reciprocity and the interaction of that norm and agent conscientiousness. The first hypothesis will look at whether or not the

existence of the norm of reciprocity influences a contract adjustment. That being said, the first hypothesis that will be tested is: H1: Respondents in the treatment group will show significantly greater reciprocity than the control group. My belief is that when there is a need for a contract adjustment, if an agent adheres more to the norm of reciprocity, the agent will be more likely to adjust the contract instead of enforcing the current contract. The norms of reciprocity and agent conscientiousness are not isolated from interacting and influencing the decision. With the possibility of this, the other hypothesis that will be tested in this project will look at the interaction of the norm of reciprocity and conscientiousness. Thus, the second hypothesis that will be tested is: H2: The more conscientious the respondent is the more likely they are to exhibit reciprocity. My belief for this hypothesis is that the higher the conscientiousness score the respondent has, the more likely they will be to exhibit the norm of reciprocity towards the contract adjustment scenario.

Final Scenario and Survey After working with Dr. Johns, we were able to construct the final scenario that would be given to the students. This scenario was used as the basis to determine whether or not the respondents would exhibit reciprocity. The final scenario that we agreed upon was included on the survey as such:
Please think of yourself as being in the following situation: Youre the manager of a company that has recently made a new product available to your usual set of retailers. One of these retailers notifies your company that they will not be able to purchase your product because they do not have sufficient financial resources to pay you for the item. They then ask you if your company can give them a special deal so they will be able to afford your product. The deal that they are asking for will decrease your profit from the item but will still allow you to make some profit, just not as much as you had planned to make.

This scenario put the respondents in the role of a manager at a company that is being faced with the possibility of change to a contract to help one of their retailers. In order to fully study the effects of reciprocity the final business scenario was coupled with different manipulation material. This manipulation material was changed for the treatment group and the control group. The control group was given manipulation material that showed that the retailer that is requesting the contract adjustment has no always been a model customer among other things. The manipulation material that was included for the control group can be seen below.
Final Control Group Manipulation Material: The retailer that is requesting the special deal is a long-term customer of yours. Unfortunately, this retailer has occasionally been late in paying for their orders. Also, on several occasions you believe this customer has chosen to deal with other suppliers simply because they were being offered a marginally better deal.

The manipulation material that was included with the business scenario for the treatment group portrayed the retailer as being a model company towards the respondents company. It also explained that this certain retailer had more or less done the respondents company a favor at one time or another. The manipulation material for the treatment group can be seen below.
Final Treatment Group Manipulation Material: The retailer that is requesting the special deal is a long-time customer of yours who has always paid for their orders in full and on time. On several occasions over the years you have felt like this customer has ordered from you when there might have been a better deal available from a competitor.

With the difference in the manipulation material, the study should be able to determine whether or not the norm of reciprocity is in place by the different responses that the students surveyed give. Once the students read through the scenario and manipulation material on their survey they were asked How likely are you to accept the retailers request for a special deal?. The students were given a 5-item Likert Scale from Very Unlikely to Very Likely to rate their responses. In all, one hundred and three Clarion University of Pennsylvania students were given the survey, with fifty two students being in the treatment group and fifty one students being in the control group. As mentioned earlier, the survey also included a 10-item IPIP conscientiousness scale. The reason for including this scale on the survey is to give each respondent an overall conscientiousness score which is totaled from the responses they give to the individual

questions. The ten items that were included to determine conscientiousness can be seen below.

The students responses to these questions were also ranked on a 5-item Likert Scale ranging from Strongly Disagree to Strongly Agree. The final section included on the survey contained questions to gain basic biographical information on the individual respondents. We believed that this information could possibly further break down the data that we gained from the survey, and we also included a couple questions relating to business experience because of the nature of the study. The biographical questions on the survey included; gender, age, people group, class standing, currently employed, years of work experience, and whether or not the respondent was a business major. The complete surveys for both the control group and treatment group can be found in the Appendix.

Data Analysis and Results In order to test the first hypothesis given, it was decided that a Two Sample t-Test would be the proper test. To determine the effect of the norm of reciprocity, the results for the treatment group will be compared to the results of the control group. The results of the t-Test show that the treatment group exhibited a higher mean than the control group. The values that go into the mean are from the responses given to how likely the respondents were to accept the special deal. The responses ranged again from Very Unlikely to Very Likely, with Very Unlikely receiving a value of 1 to Very Unlikely receiving a value of 5. The higher the mean value in the test shows that the treatment group was closer to Very Likely accepting the special deal. The exact results from the test can be seen in Table 1. Thus, the results of the tTest show that agents who were under the influence of reciprocity norm were more likely to make a decision to adjust the contract for the supplier than agents who were not under such influence. These results were also statistically significant with a value of p < .0001. Therefore, these results demonstrated that Hypothesis 1 was strongly supported. As for the interaction of the norm of reciprocity and agent conscientiousness, the test that was conducted to determine this was a whole model ANOVA regression test. This type of test is used to see how strong the values of reciprocity correlate to the conscientiousness scores. After performing the whole model regression, it was determined with an F significance of 0.00134 that overall the norm of reciprocity and agent conscientiousness are correlated. In other words, this means that reciprocity and conscientiousness do interact and the more

conscientious an individual is the more likely they are to exhibit reciprocity in the situation. The results from the whole model ANOVA regression can be seen in Table 2. This data shows that more conscientious agents are more likely to make a decision to adjust a contract for the retailer than less conscientious ones. This concludes that Hypothesis 2 is supported. Additional regression tests were used to break the data down further. After performing a regression analysis on just the treatment group, the same type of interaction was found with an F significance of 0.00044. However, when the same regression test was performed on just the control group the same interaction was not found to be statistically significant with an F value of 0.05652. The same regression tests were also performed to see if the different groups, control and treatment, and gender had significance. It was found that for males in both groups that there was not a statistically significant interaction between reciprocity and conscientiousness. For males in the treatment group the F value was 0.64604 and for males in the control group the F value was 0.05090. However, it was found that for females in both groups that there was a statistically significant interaction between reciprocity and conscientiousness. For the females in the treatment group the F value was .03231 and for females in the control group the F value was 0.00027. After performing these regression tests, hypothesis 2 was supported overall by the whole model regression. It was also found though that gender has a significant effect on the reciprocity and conscientiousness relationship. More specifically, the regression tests showed that the relationship was only statistically significant for females.

Conclusion and Discussion The results from the various tests show that both the norm of reciprocity and agent conscientiousness play a very important role in influencing the contract adjustment decision in a business scenario. The norm of reciprocity can work individually to have a positive impact on the agents decision making. This being said, the norm of reciprocity will influence the decision maker to accept the special deal if the retailer has been believed to have benefited the decision maker previously. Even though the norm of reciprocity can work individually, these results suggest that there can be an interaction between it and agent conscientiousness. The interaction of both of these would be the most-likely scenario for the contract adjustment decision to be made in favor of the retailer. This is an important subject to understand in the business world. Understanding the norm of reciprocity and agent conscientiousness can allow decision makers to condition future behaviors from others. To condition future behaviors it is possible that you can provide a benefit or a favor to another company or individual in hopes that down the road when you need a favor or benefit they will return it to you.

Appendix Final Control Group Scenario

Thank you for participating in this research study. Your participation in this study is completely voluntary and you may decline to answer any or all of the questions.

Please think of yourself as being in the following situation: Youre the manager of a company that has recently made a new product available to your usual set of retailers. One of these retailers notifies your company that they will not be able to purchase your product because they do not have sufficient financial resources to pay you for the item. They then ask you if your company can give them a special deal so they will be able to afford your product. The deal that they are asking for will decrease your profit from the item but will still allow you to make some profit, just not as much as you had planned to make. The retailer that is requesting the special deal is a long-term customer of yours. Unfortunately, this retailer has occasionally been late in paying for their orders. Also, on several occasions you believe this customer has chosen to deal with other suppliers simply because they were being offered a marginally better deal. Given this information: How likely are you to accept the retailers request for a special deal?

Very Unlikely

Unlikely

Neutral

Likely

Very Likely

In the following section, for each statement place a check mark on the line that most accurately describes you. 1. Am always prepared
Strongly Disagree Disagree
Neutral

Agree

Strongly Agree

2. Pay attention to details

Strongly Disagree Disagree Neutral Agree Strongly Agree

3. Get chores done right away

Strongly Disagree Disagree Neutral Agree Strongly Agree

4. Like order
Strongly Disagree Disagree Neutral Agree Strongly Agree

5. Follow a schedule
Strongly Disagree Disagree Neutral Agree Strongly Agree

6. Am exacting in my work
Strongly Disagree Disagree Neutral Agree Strongly Agree

7. Leave my belongings around

Strongly Disagree Disagree 8. Neutral Agree Strongly Agree

Make a mess of things

Strongly Disagree Disagree Neutral Agree Strongly Agree

9. Often forget to put things back in their proper place

Strongly Disagree Disagree 10. Neutral Agree Strongly Agree

Shirk my duties
Strongly Disagree Disagree Neutral Agree Strongly Agree

Biographical Information: - For each category, circle the answer that applies to you: Gender: Male Female

Age:

18

19

20

21

22 or older

People Group:

American Indian Native Hawaiian

Asian White

Black or African American Other/Mixed

Class Standing:

Freshman

Sophomore

Junior

Senior

Other

Currently Employed:

Yes

No

Years of Work Experience:

4 or more

Business Major:

Yes

No

Final Treatment Group Scenario

Thank you for participating in this research study. Your participation in this study is completely voluntary and you may decline to answer any or all of the questions.

Please think of yourself as being in the following situation: Youre the manager of a company that has recently made a new product available to your usual set of retailers. One of these retailers notifies your company that they will not be able to purchase your product because they do not have sufficient financial resources to pay you for the item. They then ask you if your company can give them a special deal so they will be able to afford your product. The deal that they are asking for will decrease your profit from the item but will still allow you to make some profit, just not as much as you had planned to make. The retailer that is requesting the special deal is a long-time customer of yours who has always paid for their orders in full and on time. On several occasions over the years you have felt like this customer has ordered from you when there might have been a better deal available from a competitor. Given this information: How likely are you to accept the retailers request for a special deal?

Very Unlikely

Unlikely

Neutral

Likely

Very Likely

In the following section, for each statement place a check mark on the line that most accurately describes you. 1. Am always prepared
Strongly Disagree Disagree
Neutral

Agree

Strongly Agree

2. Pay attention to details

Strongly Disagree Disagree Neutral Agree Strongly Agree

3. Get chores done right away

Strongly Disagree Disagree Neutral Agree Strongly Agree

4. Like order
Strongly Disagree Disagree Neutral Agree Strongly Agree

5. Follow a schedule
Strongly Disagree Disagree Neutral Agree Strongly Agree

6. Am exacting in my work
Strongly Disagree Disagree Neutral Agree Strongly Agree

7. Leave my belongings around

Strongly Disagree Disagree Neutral Agree Strongly Agree

8. Make a mess of things

Strongly Disagree Disagree Neutral Agree Strongly Agree

9. Often forget to put things back in their proper place

Strongly Disagree Disagree 10. Neutral Agree Strongly Agree

Shirk my duties
Strongly Disagree Disagree Neutral Agree Strongly Agree

Biographical Information: - For each category, circle the answer that applies to you: Gender: Male Female

Age:

18

19

20

21

22 or older

People Group:

American Indian Native Hawaiian

Asian White

Black or African American Other/Mixed

Class Standing:

Freshman

Sophomore

Junior

Senior

Other

Currently Employed:

Yes

No

Years of Work Experience:

4 or more

Business Major:

Yes

No

Table 1 Treatment Mean Variance Observations (n=) Hypothesized Mean Difference Df t Stat P(T<=t) one-tail t Critical one-tail P(T<=t) two-tail t Critical two-tail 97 5.399 2.37539E-07 1.661 4.751E-07 1.985 t = 5.399 p < .0001 3.884 0.692 52 0 Control 2.902 1.010 51

Table 2 ANOVA df Regression Residual Total 1 101 102 SS 10.77127 99.90834 110.67961 MS 10.77127 0.98919 F 10.88897 Significance F 0.00134