We study how leaders influence the unethical conduct of followers. To avoid selection issues present in natural environments, we use a laboratory experiment in which we form groups and assign leadership roles at random. We study an environment in which groups compete, with dishonest behavior enhancing group earnings to the detriment of social welfare. We vary, by treatment, two instruments through which leaders can influence follower conduct—prominent statements to the group and the allocation of monetary incentives.

In general, the presence of active group leaders yields significantly more misreporting. Moreover, statements from leaders have a stronger effect on follower behavior than the ability to distribute financial rewards. We also identify heterogeneity between leaders in their propensity to act dishonestly, which correlates with their willingness to use statements or incentives as a means for encouraging dishonest follower conduct. Finally, we provide evidence that appointing leaders who are likely to have acted dishonestly in a preliminary stage of the experiment yields groups with significantly more dishonest behavior.