Seek and Ye Might Not Find: The Effects of Contract Framing on Knowledge Sharing and Knowledge Seeking

ABSTRACT We conduct two experiments to examine whether and how the framing (bonus vs. penalty) of a target‐based incentive contract affects knowledge sharing and knowledge seeking. In the first experiment, we predict and find that penalty‐framed contracts increase employees' stress due to the fear of potential loss, which in turn reduces their willingness to share knowledge. Additionally, consistent with loss aversion, employees under penalty‐framed contracts are more likely to seek knowledge than those under bonus‐framed contracts. The second experiment corroborates our theoretical arguments by demonstrating the crucial role of stress in reducing knowledge‐sharing behavior. The results show that, when stress is alleviated through an informal control mechanism, penalty‐framed contracts no longer reduce knowledge sharing. The implications of our findings for research and practice are discussed.