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

Working Paper
Published on 6 November 2018

Abstract

Agency theory suggests that moral hazard in employer-employee contracting constrains firm profits. Kelley et al. (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. They randomize whether minibus owners have access to these monitoring data using a novel mobile app. This information allows owners in the treatment group to observe a more precise signal of driver effort, the amount of revenue drivers collected in fares, and the extent to which the driver engages in reckless driving. They find that treated vehicle owners modify the terms of the contract by decreasing the rental price they demand. Drivers respond by working more hours, decreasing behavior that damages the vehicle, and under-reporting revenue by less. These changes improve firm profits and reduce management costs, thereby helping treated firms grow. The device also improves owners' trust in their drivers, which drivers say makes their job easier. Finally, they investigate whether these gains to the company come at the expense of passenger safety, in an environment where accidents are common. 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 we detect safety improvements.

Authors

Erin Kelley

University of California, Berkeley

Gregory Lane

University of California, Berkeley

David Schoenholzer

University of California, Berkeley