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

November 19, 2019

Washington, DC

  • 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 firms 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 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, 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 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.

  • Erin Kelley

    Erin Kelley

    Erin Kelley joined the World Bank (DIME) in September. In her research, Erin designs large-scale randomized experiments to study how technological innovations can be used to solve complex problems that affect households and firms in low-income countries. She has projects in Kenya, Bangladesh and India. The work in India investigates whether providing online skill assessments to job-applicants helps hiring managers identify candidates they may have traditionally overlooked. In Kenya, Erin's research examines how the use of GPS monitoring systems in mini-buses impacts business operations. Finally, her work in Bangladesh investigates the impact of providing work tasks to refugees on their psycho-social wellbeing.

  • DIME is a World Bank-wide program to generate knowledge on the effectiveness of development policies. Working across 18 thematic areas, DIME collaborates with 300 agencies in 72 countries to improve the effectiveness of policies and programs and strengthen country capacity for real-time evidence-based policy-making. More »

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