Monitoring in Small Firms: Experimental Evidence from Kenyan Public Transit

Working Paper
Published on 2 July 2021


This paper was initially published in 2018 under the title 'The Impact of Monitoring Technologies on Contracts and Employee Behavior: Experimental Evidence from Kenya's Transit Industry'.

Agency theory suggests that moral hazard in employer{employee contracting constrains firm profits. We use a randomized controlled trial to empirically evaluate how information and communication technologies (ICT) can mitigate moral hazard and enable rms to design more efficient contracts which increase profits and engender business growth. Specifically, we study a fleet of 255 minibuses (matatus) in Nairobi, Kenya, where we introduce monitoring devices that track real-time vehicle location, daily productivity, and safety statistics. We 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. We nd 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, we investigate whether these gains to the company come at the expense of passenger safety, in an environment where accidents are common. While we do not nd 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.


Erin Kelley

World Bank

Gregory Lane

University of California, Berkeley

David Schönholzer

Stockholm University