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This dissertation starts from the observation that human beings have won the evolutionary battle because of their ability to initiate interactions with other human beings. The memory function of the human brain and the ability to create language are the main drivers of humans’ unique ability to initiate interactions with other human beings. However, it is well-known that the human brain is constrained and subject to several biases such as loss aversion and the anchoring-and-adjustment heuristic. In other words, the human brain puts an upper limit on the complexity of the interactions that humans are involved in. Nevertheless, humans are involved in highly complex, but well-executed, interactions such as daily traffic in cities, joint ventures, lease agreements, and financial transactions. This dissertation focuses on two ordering institutions that are external to the human brain and support the initiation of complex interactions between human beings. Social norms are a first ordering institution external to the human brain and refer to codes of conduct or conventions that govern our interactions within the family, in external social relations, or in business activities. Social norms facilitate the initiation of complex interactions as they contain socially transmitted information and indicate how people should behave in particular situations. In other words, social norms contain information about ‘the way how things are usually done’. Although social norms are an important ordering mechanism in organizations, interactions between employees are also governed by formal mechanisms such as incentive systems and information systems. In manuscript 1, I explicitly recognize that organizations implement multiple formal mechanisms to govern interactions between employees. Specifically, I investigate whether the importance of the social norms in an organization differs between aligned combinations of formal mechanisms, which send an unambiguous signal to always act in the best interest of the organization, and misaligned combinations of formal mechanisms, which send an ambiguous signal. The results of an experiment show that social norms are a more important driver of behavior in case of misaligned combinations of formal mechanisms than in case of aligned combinations of formal mechanisms. As organizations are often involved in change processes, which increase the probability of misaligned combinations of formal mechanisms, this result implies that social norms are an important driver of behavior in organizations. This result also provides a theoretical foundation for the large amount of money that organizations invest in developing good relationships between various departments or business units by means of various social events.Accounting information is a second ordering institution external to the human brain that facilitates complex interactions between human beings. External financial reporting, for instance, facilitates investment decisions, and internal accounting information plays an important role during budget negotiations. In manuscript two and three, I explicitly recognize that accounting information is imperfect and I investigate how the imperfect nature of accounting information influences interactions between competitors (manuscript 2) and between a CEO and the different business unit managers (manuscript 3). It has been well-established that collusion in price competition is driven by environmental factors such as the presence or absence of entry-barriers, the number of competitors, and the market history. An important assumption is that all competitors have access to perfect marginal cost information and thus have the same focal points for setting their prices. However, a wealth of evidence shows that competitors rely on full-cost information for setting their prices. As full-cost information can differ in accuracy, it is not unlikely that competitors rely on different focal points for setting their prices. Relying on the fact that common focal points facilitate price coordination, I hypothesize that the influence of the well-known environmental factors will be stronger when all competitors rely on accurate full-cost information (i.e. common focal points and full dispersion of accurate cost information) than when not all competitors rely on accurate full-cost information (i.e. separate focal points and partial dispersion of accurate cost information). The results of an experiment support this hypothesis. Thus, when all competitors rely on accurate cost information, environmental factors will influence collusion between competitors as predicted by economic theory. However, when not all competitors rely on accurate cost information, environmental factors do not influence collusion. This result emphasizes the importance of explicitly incorporating the imperfect nature of accounting information in theories that describe interactions between competitors. Furthermore, this study shows that regulating the type of cost accounting information that firms should collect, which often happens in the public utilities industries, can facilitate collusion as this leads to situations in which competitors have common focal points.In the third manuscript, I recognize that the private information of managers that is used during budget negotiations with the CEO is imperfect. This implies that the power of distributional fairness concerns, which instigate managers to go for an equal split of the available surplus, for obtaining honest budget reports is weakened. I hypothesize that increasing the span of control of the CEO will instigate more honest reporting as an increased span of control activates peer-induced fairness concerns, which instigates managers to submit cost reports that are honest vis-à-vis the cost reports of the other managers that report to the same CEO. I also hypothesize that an increased span of control instigates managers to invest in more accurate information, which is costly for the manager but beneficial for the company. The results of an experiment support both hypotheses and emphasize the importance of an increased span of control when information during budget negotiations is inaccurate or uncertain. Taken together, this dissertation shows that accounting information and social norms are important drivers of the interactions between human beings. With respect to social norms, I show that misaligned combinations of formal mechanisms increase the importance of social norms. Thus, the inherent complexity in designing aligned combinations of formal mechanisms, which are installed on top of the social norms because people suppose that social norms will not be sufficient to govern the complex interactions, leads to a ‘revival of the social norms’. With respect to accounting information, I show that the imperfect nature of accounting information changes competitive and collusive interactions between firms. Furthermore, the imperfect nature of accounting information increases the importance of implementing mechanisms that activate peer-induced fairness concerns to obtain honest reporting. Thus, accounting information is not only a reflection of reality but it also shapes reality because of its imperfect na

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Social norms

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