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Bad incentives put the brakes on firm growth: Evidence from Kenya's matatus: Guest post by Erin Kelley

Development Impact Guest Blogger's picture

This is the third in this year's series of posts by PhD students on the job market.
A firm’s success rides heavily on the performance of its employees. It is therefore important that firms design employment contracts that properly incentivize hard work. This becomes more challenging when firms cannot observe the amount of effort employees invest, nor the amount of output they produce. In theory, firms can use monitoring technologies that reveal the performance of their workers more accurately to overcome this constraint (Holmstrom, 1979). In practice, however, the impact of such monitoring technologies on contracts and employee performance is unclear. Managers may not know how to leverage the additional information monitoring technologies reveal. Moreover, weak legal institutions, which prevent companies from credibly sanctioning bad behavior, may limit how useful the new information actually is. 
In my job market paper - co-authored with Gregory Lane and David Schönholzer – we study the impact of moral hazard on labor contracting, employee behavior, and the extent to which improved monitoring affects firm operations. We also establish whether any gains to companies come at the expense of their workers, or society at large. To this end, we implement a randomized control trial where we introduce a monitoring device to 255 firms (vehicle owners) operating in Kenya’s transit industry. We design a novel mobile application that provides information to 125 treatment firms regarding: the location of the vehicle, number of kilometers driven, number of hours the ignition was on, and the number of safety violations incurred (sharp-braking, sharp-turning, over-acceleration and speeding). We confirm that 70% of owners consult the app weekly. This information provides treatment owners with a more precise estimate of what revenue should be, and whether drivers are engaging in behavior that damages the vehicle. This has implications for the owners’ choice of contract and drivers’ behavior, which ultimately impact firm profits/growth. We use daily surveys from vehicle owners and drivers over six-months to track the impact of reducing asymmetric information on these outcomes.

The five drivers for improving public sector performance: Lessons from the new World Bank Global Report

Jana Kunicova's picture

Almost daily, headlines in the world’s leading newspapers are full of examples of public sector failures: public money is mismanaged or outright misused; civil servants are not motivated or are poorly trained; government agencies fail to coordinate with each other; and as a result, citizens are either deprived of quality public services, or must go through a bureaucratic maze to access them.

Cigarettes or the Greek Islands? The deal my dad offered me

Damien de Walque's picture

When I was a teenager in Belgium, my parents wanted to make sure that I wouldn’t become a smoker. At the age of 15, I had tried a few cigarettes with friends and they were worried I would pick up the habit. They could have organized a complicated system of surveillance and sanctions to monitor and prevent my smoking behavior. Instead, my dad offered me a very simple deal: “if you are not smoking by the time you graduate from high school, I will pay your trip to a destination of your choice in Europe during the summer before you start college”. My dad’s deal worked well: I took a great trip to Greece – my first flight – with a few friends and I have never smoked after those first cigarettes at 15.

Why doctors leave their posts – problem-solving irregularities in the health sector with healthcare workers in Bangladesh

Mushtaq Khan's picture

It’s not often you get together the very people working on the frontline to sit down together and discuss why and how irregular practices occur in their sector – and what can be done about them. But that’s just what we did with a group of frontline health workers at a workshop in Bangladesh’s capital Dhaka in December 2017. We wanted to understand why corrupt and irregular practices occur in the health sector - what are the underlying incentives and processes? And what are some feasible and impactful ways to change these practices?

Many developing countries, including the three where our research consortium, the Anti-Corruption Evidence research consortium is working, Bangladesh, Nigeria and Tanzania, struggle to provide free or low-cost healthcare to all their citizens. Instead, citizens are often forced to buy services from the private sector at higher fees or worse, approach untrained or traditional healers. There is agreement in the literature that a large proportion of these inefficiencies occur due to corrupt practices (though there’s an active debate about whether using the c-word is helpful in this debate, which is why we talked about ‘irregularities’ during this workshop). Many of these practices are related to the way societies in developing countries are organized around patron-client relations, where tax resources are insufficient, and resources, jobs and promotions require lobbying powerful politicians.

Beyond the status quo: Using impact evaluation for innovation in health policy

Marcus Holmlund's picture

How do we deliver higher-quality health services in low-capacity settings? 
This is the question that we have sought to answer through a long-standing impact evaluation (IE) research collaboration with the Nigerian Ministry of Health and the Bill & Melinda Gates Foundation. The results of this collaboration will be presented at the World Bank on February 8 at Beyond the Status Quo: Using Impact Evaluation for Innovation in Health Policy. This one-day event will bring together policymakers, practitioners, and academics to discuss policy implications and ways to further promote and strengthen capacity for evidence-informed policy.

Can incentives lead to sustained impacts? The case of rewarding safe sex.

Damien de Walque's picture
Economists believe that incentives matter and that they can be used for changing people’s behaviors. Incentives are used for encouraging school attendance and performance or for increasing the coverage and quality of health care delivery. But a recurrent question is what happens once the incentives are discontinued? Are the incentives’ effects going to be sustained even after their payment is stopped because individuals would have been nudged towards a different behavior? Or are those effects going to die down and disappear once incentives are removed?

DFID is Changing its Approach to Better Address the Underlying Causes of Poverty and Conflict – Can it Work? Guest Post from two DFID Reformers

Duncan Green's picture

Aid donors are often maligned for bureaucratic procedures, a focus on short-term results at the expense of longer-term, riskier institutional change, and a technical, managerial approach to aid with insufficient focus on context, power and politics. Are these institutional barriers insurmountable? Can aid agencies create an enabling environment to think and work politically? 

Tom WingfieldTom Wingfield (top) and Pete Vowles (bottom) from DFID’s new ‘Better Delivery Taskforce’ have been trying to do just that. Here’s where they’ve got to.

For the past year DFID has been focussing on these issues and how we can both guard taxpayer’s money and have transformational impact in the countries where we work. The result has been the introduction of a comprehensive set of reforms targeting our process, capability and culture. Pete VowlesThis is about creating the conditions that allow us to better address the underlying causes of poverty and conflict, and respond effectively to the post-2015 agenda. At the heart of the reform is a revamp of DFID’s operating framework (ie the rules and principles which govern our work). Known as the ‘Smart Rules’, it can be downloaded here.

Like any institutional reform, this is a long term change process.  The next 12 months provide a real opportunity to strengthen our partnerships with a wide range of partners and enhance our collective effectiveness.