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

This project expands a previous intervention that implemented a fleet management system in Kenya’s semi-formal public transport system along three margins: possible negative effects of the tracking system, role of cash incentives in enhancing safety and increasing duration and participation to the pilot.

In a previous project, the researchers developed and tested a fleet management (Figure 1) system for Kenya’s semi-formal public transport system. The pilot study showed that firms with this system were more easily able to track their employees’ productivity and safety performance, which allowed owners to incentivize better driving behaviour. The researchers, therefore, build on this success expanding the project to investigate three more paths. First, as the quality of transportation services may be affected by the tracking system, the researchers want to survey matatu customers in terms of safety and speed of their commutes. Second, it will be implemented a system of cash incentives, separated from the existing contracts with the owners, which should lead drivers to embrace more safety measures, mimicking the role of a regulatory body. Third, the duration and the participation to the pilot will be extended: this is crucial to calibrate the treatment arms dedicated to safety and productivity in a way that allows to estimate welfare effects.

Being a scale-up, this project will exploit the previous intervention. However, to properly gauge customer feedback, the researchers will run an additional baseline survey of 500 passengers to get a sense of how they value safety and speed of their commute. Conversely, to identify the effects of the cash incentives, pre-determined sums of money will be allocated to matatu drivers at the beginning of the day. A fixed amount will then be deducted for every safety violation detected by the tracking device. Finally, additional funds will allow the researchers to extend duration and participation to the pilot.

Matatu owners and Savings and Credit Associations (SACCO) managers have been enthusiastic about the previous project: some of them have asked us to fit their entire fleet. The former see the main benefit in making sure that their matatus are being driven with care and that their drivers are reporting productivity truthfully. On the other hand, SACCO managers also see it as a way to avoid having SACCO blamed for individual instances of bad driving. Also drivers have been optimistic that the system can be to their benefit. As the researchers report, a matatu driver union leader (and former driver) sees the system as an effective way to reward good driving and detect bad drivers who are hurting the industry. Indeed, negative externalities are widespread in this sector, and safe drivers perceive our system as a way to minimize the effect of these externalities on their employment and income. As semi-formal public transport systems are of large and growing importance to many developing countries today, this tracking system has a large potential to be scaled up not only in Kenya but also in other parts of the developing world.