Digital technologies have spread rapidly in much of the world. They are potentially a game-changer for firms, for several reasons: (1) they remove the transaction costs involved in cash payments (e.g., due to shortages of small change), and (2) they increase traceability, mitigating information asymmetry within firms. By mitigating moral hazard, digital technologies enable changes in the contracting space between employers and employees. This change may itself constitute a barrier to their adoption. This study aims to answer the following research questions: 1) To what extent do existing information asymmetries in the informal transit sector prevent digital technology adoption? 2) What are the impacts of digital payment technologies on productivity and the contracting space for small businesses in lower-income countries, using the case study of taxi businesses?
In order to answer these questions, the researcher will carry out a randomised controlled trial involving taxi business owners (principal) and taxi drivers (agent) in Dakar. The research is implemented in partnership with one of the largest mobile money companies in the country. Treated owners and drivers will be invited to use the digital payments technology. The treatment group will be subject to three options varying the level of visibility of the taxi owners on their driver’s digital transactions. These options aim to reduce information asymmetries and measure their impacts on adoption and contracts between stakeholders.
This project is designed to measure contract persistence and change of norms in and outside the sample while also relying on administrative data. Successful adoption will lead the implementing partner to launch the technology and its options, based on results from this study, in the rest of the country and additional African countries. This expansion should strengthen the external validity of the project further. Policymakers stand to benefit because the taxi business is critical to public transportation in low-income settings. Because it is also a danger to the safety of drivers, who work long hours almost every day, it may also result in the double benefit of increased profitability and increased safety (i.e., to the passengers as well). Scaling up such an innovation will dramatically affect these populations, and research is vital to understand the benefits as well as potential challenges of these technologies to users.
