Mitigating Market Frictions by Monitoring Employees in SMEs: A Field Experiment in Kenya's Public Transport Sector

This project will provide monitoring technology to SMEs in a randomized controlled trial to improve their ability to write effective contracts with their employees.

Low productivity is a pervasive phenomenon in small and medium-sized enterprises (SMEs) operating in Low Income Countries (LICs) and constitutes a major roadblock to economic growth. Among the causes of low productivity that SMEs face, the difficulty of writing effective contracts with employees is an important and understudied cause. In Kenya, more than three million people use matatus (minibuses) every day; an industry dominated by small-scale entrepreneurs. They hire drivers on a daily basis with high-powered incentives by using residual-claimant schemes: owners set daily target amounts that drivers need to return at the end of the work day. Any insurance costs, licencing costs and maintenance costs accrue to the owner. If more dimensions of employee behaviour became observable, incentives between SMEs and employees could become more closely aligned, increasing productivity.

To estimate the causal effect of monitoring on contracts, productivity, safety and equity, the authors will run a randomized controlled trial (RCT) on matatu owners in Nairobi, Kenya. Their treatments are divided into two sets: information treatments administered to owners, and cash incentives administered to drivers. Information treatments for owners are either based on productivity information, safety information, or both. Besides the productivity data that will be collected through the GPS monitoring devices in matatus, they will collect additional information through incentivized SMS surveys as well as baseline (i.e. surveying round occurring before the implementation of the intervention) and end-line surveys. They will then compare outcomes in the treatment groups with each other as well as to the control group, to enhance their understanding of what incentives are most efficient for both parties.

Public transport is a major hazard across the developing world, and policymakers are still grappling with successful regulation of the industry. These technologies are likely to have a profound impact on how transport in LICs is run, and at this point, the impacts are largely unknown. Generally, knowledge gained in the Kenyan private transport sector is broadly applicable to LICs across the globe - what is learnt about the matatu industry in Kenya can therefore be relevant for the Rickshaw industry in India and the Pesero industry in Mexico.