1 Controlling deviant behaviors in employee-owned cooperatives: The role of leadership Milind Padalkar Indian Institute of Management, Kozhikode, Kerala, India Saji Gopinath Bennett University, NOIDA, UP, India saji.gopinath@timesgroup.com Abhilash Kumar UL Technology Solutions Ltd., Trivandrum, Kerala, India Abstract Controlling deviant behaviors is important for employee-owned cooperatives especially when engaged in project business. From a case study of a high performance construction cooperative, we find that peer pressure, value espousal, and transparency can lead to lower managerial overheads to control deviant behaviors and obtain stable high performance equilibria. Keywords: Deviant behavior, Peer pressure, Value leadership, Game theory INTRODUCTION The topic of employee-organization relationship (EOR) has been a subject of intense and prolonged debate in multiple fields such as organizational behavior, economics, and industrial psychology. How organizations relate to their employees, has been studied principally through the theoretic lenses of exchange and reciprocity between the human actor and the organization (Levinson, 1965; Shore and Coyle-Shapiro, 2003). Most EOR studies appeal to some combination of social exchange theory, and/or economic exchange theory, e.g. inducements offered by the organization in exchange for the employee’s contributions (Tsui et al.1997; Coyle- Shapiro and Shore, 2007). The dominant view of the employee in these studies is that of an independent actor participating in contracts (economic exchange), or investing in EOR with some expectation of future benefits (social exchange). The survival of the assumption that the parties retain independence implies that the tenure of relationship does not affect their choices or valuations. When mixed with the notions of bounded rationality and information deficiency, the independence assumption readily supports transaction cost economics (Williamson, 1981) and principal-agent theory (Eisenhardt, 1989). The necessity of organizational controls on employee behaviors can be said to arise from the independence of the parties, the information deficit, and the opportunism of the agent. These controls take complex forms through organizational hierarchies, defined rules, behavioral norms, standards, operating processes and procedures, and incentive regimes. It is not necessary to completely or explicitly state all the norms of proper