Essays in development economics

This thesis contains three chapters that fall under the broad banner of development economics, with a particular focus on the study of mechanisms and strategies that improve public goods delivery. The first chapter studies the role of financial incentives as signals of job attributes when these are unknown to potential applicants. I create experimental variation in expected earnings and use it to estimate the effect of financial incentives on candidates’ perception of a newly created health worker position in Uganda and, through this, on the size and composition of the applicant pool. I find that more lucrative positions are perceived as entailing a lower positive externality for the community, and discourage agents with strong prosocial preferences from applying. While higher financial incentives attract more applicants and increase the probability of filling a vacancy, they hamper retention and performance. This is because the signal they convey reduces the ability to recruit the most socially motivated agents, who are found to stay longer on the job and to perform better. The second chapter analyzes the role of social connections on the targeting choices of delivery agents. During the expansion of an agriculture extension program in Uganda, we randomly selected one delivery agent out of two eligible candidates per community. We find that social connections matter: relative to farmers connected only to the non-selected candidate, those connected only to the selected delivery agent benefit more from the program. They are indeed more likely to receive advice, training and more likely to adopt improved seeds, a new beneficial technology. We show that these results are consistent with delivery agents (a) putting positive weight on the utility of farmers connected to them (altruism) and (b) putting a negative weight on the utility of farmers connected to the rival candidate (spite). This sheds light on the importance of both positive and negative social preferences in shaping program delivery. The third chapter studies the effect of movement restrictions on education. The evidence is based on the construction of the West Bank Separation Barrier in 2003. The exposure of an individual to the Barrier is determined both by her locality of residence and by whether she was in school or about to start school when the Barrier was built. Using a difference-indifferences approach, I find that movement restrictions increase the probability of dropping out from elementary and preparatory school by 3.7 and 6 percentage points respectively, i.e. a 50% increase relative to localities with no movement restrictions, while the proportion of children who have never attended school increased by 3.6 percentage points. Among all households, the poorest ones are the most affected, indicating that movement restrictions not only deteriorate the average education level but also increase income inequality

Social incentives, delivery agents, and the effectiveness of development interventions

There has been a rise in the use of the local delivery model for development interventions, where local agents are hired as intermediaries to target benefits to potential beneficiaries. We study this model in the context of a standard agricultural extension intervention in Uganda. We document a trade-off between coverage and targeting: delivery agents treat more farmers when they have a greater number of social ties, but they are significantly more likely to target their nonpoor ties. We conclude by discussing the implications of our findings for the design of the local delivery model for antipoverty interventions

Financial incentives as signals: experimental evidence from the recruitment of village promoters in Uganda

I study the role of financial incentives as signals of job characteristics when these are unknown to potential applicants. To this end, I create experimental variation in expected earnings and use that to estimate the effect of financial incentives on candidates’ perception of a brand-new health-promoter position in Uganda and on the resulting size and composition of the applicant pool. I find that more lucrative positions are perceived as entailing a lower positive externality for the commu- nity and discourage agents with strong prosocial preferences from applying. While higher financial incentives attract more applicants and increase the probability of filling a vacancy, the signal they convey reduces the ability to recruit the most socially motivated agents, who are found to stay longer on the job and to perform better

Leader selection and service delivery in community groups: experimental evidence from Uganda

In developing countries, NGOs and Governments often rely on local community-based groups for the delivery of financial and public services. This paper provides causal evidence of how the design of rules used for group leader selection affects leader identity and shapes group service delivery. In collaboration with the NGO BRAC, we randomly assigned newly-formed Savings and Loan Groups to select their leaders using either (i) a procedure in which final outcomes are decided in a public discussion or (ii) a procedure in which final outcomes are decided in a private vote. Leaders selected with a private vote are found to be less positively selected on socioeconomic characteristics than those elected in the public procedure, and at the same time more representative of regular group members. Furthermore, selecting more representative leaders—through a private vote—results in groups that are more inclusive towards poor members by giving them more credit and retaining them longer. Three years after their creation, private vote groups are more inclusive than public discussion groups, without being less economically efficient

Counterproductive worker behavior after a pay cut

We examine how workers reacted to a pay cut in a sales call center setting in the United States. The pay cut was implemented by raising two pre-existing sales targets, that is, by “moving the goalposts”. Using a difference-in-difference approach, we show that among the workers who experienced the pay cut, some chose to leave the firm (exit); others generated abnormally high customer refunds, in a way that hurt both them and the firm. (We define this work practice as counterproductive.) The firm believed, and we present evidence, that these workers intentionally sold the wrong items, as opposed to simply optimally shirking on effort in response to the pay cut. We show that the most loyal workers (those with longer tenure) expressed themselves only through counterproductive work practices and not through exit. Less loyal workers reacted more strongly than loyal workers, and did so through a balanced mix of exit and counterproductive behavior. To our knowledge, this is the first study to document individual-level patterns of exit and (counter-) productivity following a pay cut and, how these differ for high- versus low-loyalty workers

Minimum wage and individual worker productivity: evidence from a large US retailer

We study workers who are employed by a large US retailer, work in many store locations, and are paid based on performance. By means of a border-discontinuity analysis, we document that workers become more productive and are terminated less often after a minimum wage increase. These effects are stronger among workers whose pay is more often supported by the minimum wage. However, when workers are monitored less intensely, the minimum wage depresses productivity. We interpret these findings through an efficiency wage model. After a minimum wage increase, profits decrease, and a calibration exercise suggests that worker welfare increases

When transparency fails: financial incentives for local banking agents in Indonesia

We study the effect of raising the level and transparency of financial incentives offered to local agents for acquiring clients of a new banking product on take-up. We find that paying agents higher incentives increases take-up and usage, but only when the incentives are unknown to prospective clients. When disclosed, higher incentives have no effect on take-up and usage, despite greater agent effort. This is due to the financial incentives sending a negative signal to potential clients about the reliability and trustworthiness of the product. Hence, when designing incentives, organizations should consider both their level and transparency

Promotions and Productivity: The Role of Meritocracy and Pay Progression in the Public Sector

We study promotion incentives in the public sector by means of a field experiment with the Ministry of Health in Sierra Leone. The experiment creates exogenous variation in meritocracy by linking promotions to performance for the lowest tier of health workers and in perceived pay progression by revealing to them the salary of higher-tier workers. We find that meritocratic promotions lead to higher productivity for workers who expect a steep pay increase and those who are highly ranked in terms of performance. When promotions are not meritocratic, increasing the pay gradient instead reduces worker productivity through negative morale effects. The findings highlight the importance of taking into account the interactions between different tools of personnel policy.&nbsp

Effect of mood and worker incentives on workplace productivity

We study the causal effect of mood on the productivity of call-center workers. Mood is measured through an online “mood questionnaire” which the workers are encouraged to fill out daily. We find that better mood actually decreases worker productivity for workers whose compensation is largely fixed. The negative effect of mood is attenuated for workers whose compensation is based on performance (high-powered incentives). This finding holds both at a correlational level and in two IV settings, where mood is instrumented for by weather or, alternatively, by whether the local professional sports team played/won the day before. We rule out a number of threats to the exclusion restrictions, and discuss the mechanisms that could generate our finding