The Impact of Monitoring Technologies on Contracts and Employee Behavior: Experimental Evidence from Kenya's Matatu Industry

Working Paper
Published on 2 October 2019

Abstract

Agency theory suggests that moral hazard in employer-employee contracting constrains firm profits. Kelley, Lane and Schoenholzer (2018) use a randomized controlled trial to empirically evaluate how information and communication technologies (ICT) can mitigate moral hazard and enable firms to design more efficient contracts which increase profits and engender business growth. Specifically, they study a fleet of 255 minibuses (matatus) in Nairobi, Kenya, where they introduce monitoring devices that track real-time vehicle location, daily productivity and safety statistics. The authors randomize whether minibus owners have access to these monitoring data through a novel mobile app. The information they provide to owners in the treatment group allows them to observe a more precise signal of driver effort, the amount of revenue collected in fares, and the extent to which the driver engages in damaging driving. The researchers find that this information treatment allows vehicle owners to modify the terms of the contract by decreasing the rental price they demand. Drivers resopnd by exerting more effort, decreasing behavior that damages the vehicle, and under-reporting revenue by less, leading to an overall increase in firm profitability and facilitating investments in additional buses. Finally, the authors investigate whether these gains to the company come at the expense of passenger safety, which is already at risk in an industry with frequent accidents. While they do not find any evidence that conditions deteriorate, offering detailed information on driving behavior also does not improve safety. Only by incentivizing drivers through an additional cash treatment do they detect safety improvements.

Authors

Erin Kelley

University of California, Berkeley

Gregory Lane

University of California, Berkeley

David Schoenholzer

University of California, Berkeley