Team or Individual: What Determines Workers' Preferred Bonus Schemes?

This paper uses data from a firm with team production to investigate the association between workers’ productivity, risk aversion and preferred bonus scheme (team or individual). Standard economics make a strong prediction in this case. Workers persistently producing above the team average should vote for an individual bonus. The only concern that may moderate this preference is risk aversion. The economic model predicts the case at hand fairly well. Relative work place productivity is strongly associated with a preference for individual bonuses, and risk aversion is associated with a preference for a team bonus. There is, however, one noticeable exception to this pattern: a substantial fraction of low performers prefer an individual bonus. I argue there are two types of other regarding concerns that can explain why under-performers prefer a payment system that reduces their income; distributional fairness and social emotions.payment systems, risk aversion, social appraisal, fairness

Improving the quality of health care when health workers are in short supply

A number of low- and middle-income countries have a severe shortage of health workers. This paper studies how health workers’ choices of labour supply and work effort impact on the quality of health services when health workers are in short supply. We analyse how policy measures such as monetary incentives, monitoring, provisions of quality-enhancing inputs, and the building of professionalism and organisational identity can improve the quality of health care in the presence of a health worker shortage. We find that to pay health workers based on the number of patients may have a positive impact on the quality of health care even if quality does not affect demand. Furthermore, provision of quality-enhancing drugs and equipment may reduce health workers’ effort in delivering quality care, thus diminishing the positive impact of such interventions. Our most surprising result is that if the actual quality of health care is far below a professional standard, measures to build a professional mindset among health workers may reduce the quality of care.Public Goods; Laboratory; Individual Behavior

Structural Adjustment and Endogenous Worker Recall Probabilities

In this paper we investigate the incentives of unemployed workers to wait for a recall when recall probabilities are endogenously determined by the waiting decisions of others. Because of a positive externality that arises when workers seek new employment, an excessive number of workers choose to wait for a recall, and structural adjustment is slow. We also find that a small reduction in the unemployment benefits, or introducing a small cash bonus for workers that get a new job, may have no e.ect on unemployment in some cases, while eradicating significant levels of unemployment in other cases. Our analysis suggests that the government may face a Samaritan’s Dilemma if it can influence the recall probability of workers, and that multiple equilibria may exist in a game involving both workers and an unemployment-averse government. Furthermore, we explore a link to the war of attrition literature, showing that the Bulow and Klemperer (1999) ”one too many”-result may not hold if there is uncertainty concerning when the game ends.structural adjustment,unemployment, recalls, search, war of attrition.

Sticks and Carrots for the Alleviation of Long Term Poverty

Work requirements can make it easier to screen the poor from the non-poor.They can also affect future poverty by changing the poors' incentive to invest in their income capacity. The novelty of our study is the focus on long term poverty. We find that the argument for using work requirements as a screening device is both strengthened and weakened with long term poverty, and that the possibility of using work requirements weakens the incentives to exert effort to escape poverty. We also show that the two incentive problems, to screen poverty and deter poverty, are interwoven; the fact that the poor can exert an effort to increase their probability of being non-poor in the future makes it easier to separate the poor from the non-poor in the initial phase of the program. Finaly we show that if it is possible to commit to a long term poverty alleviation program it is almost always optimal to impose some work requirements on those that receive transfers.long-term poverty, ratchet effect, moral hazard, screening.

Employee referral, social proximity and worker discipline

We study ex-post hiring risks in low income countries with limited legal and regulatory frameworks. In our theory of employee referral, the new recruit internalises the rewards and punishments of the in-house referee meted out by the hiring firm. This social mechanism makes it cheaper for the firm to induce worker discipline. The degree of internalization depends on the unobserved strength of the endogenous social tie between the referee and the recruit. When the referee's utility is increasing in the strength of ties, referee workplace incentives do not matter and referee and employer incentives are aligned: in this case industries and jobs with high costs of opportunism and where dense kinship networks can match the skill requirements of employers will have clusters of close family and friends, they will show a high incidence of referrals rather than anonymous hiring and will show a wage premium to referred workers matched by their higher productivity. This no longer applies if the referee's utility is decreasing in the strength of ties: referrals are then more costly for firms, they will be used less frequently by employers and will require higher referee wages (or status). We illustrate how these insights add to our understanding of South-Asian labour markets

Structural adjustment and endogenous worker recall probabilities

In this paper we investigate the incentives of unemployed workers to wait for a recall when recall probabilities are endogenously determined by the waiting decisions of others. Because of a positive externality that arise when workers seek new employment, an excessive number of workers choose to wait for a recall, and structural adjustment is slow. We also find that a small reduction in the unemployment benefits, or introducing a small cash bonus for workers that get a new job, may have no effect on unemployment in some cases, while eradicating significant levels of unemployment in other cases. Our analysis suggests that the government my face a Samaritan’s Dilemma if it can influence the recall probability of workers, and that multiple equilibria may exist in a game involving both workers and an unemployment-averse government. Furthermore, we explore a link to the war of attrition literature, showing that the Bulow and Klemperer (1999) ”one too many”-result may not hold if there is uncertainty concerning when the game ends.Structural adjustment; unemployment; recalls; search; war of attrition.

Pay and performance in a customer service centre - principal and agents or principally angels?

We have followed a pay for performance reform in the phone based customer service centre of an insurance company, from its introduction in 2001 until the end of 2004. We use hard and soft data from the design and impact of the reform to contrast two theories of work motivation; the traditional self interest hypothesis that the principal-agent model builds on, with the hypothesis that fairness and reciprocity are significant motivational forces at workplaces. The reform was initiated to increase sales of insurance in the customer service centre and it gave the operators both economic incentives and fairness- and reciprocity incentives to increase their sales effort. The reform had a positive effect on sales; the operators answered more calls and sold insurance to a higher fraction of customers after the reform. This observation alone does not help us identify the importance of the motivational hypothesis we compare. However, when we look closer at the evolution of the design and impact of the payment plan, we conclude that our data correspond best with the standard principal-agent model.Team incentives; multitask; fairness; reciprocity.

Network mechanisms and social ties in markets for low- and unskilled jobs: (theory and) evidence from North-India

Abstract: Workplace referrals may resolve incentive problems that arise due to incomplete contracts. We use an in-depth primary data set covering low- and unskilled migrants from Western Uttar Pradesh (India), to examine this and alternative explanations for referral-based recruitment. We find little evidence of referral screening for unobservable worker traits, but some support for a hypothesis of referral as a mechanism to enforce workforce discipline. Two observations back this conjecture: the high prevalence of strong kinship ties between referees and new recruits and that those who recruit are in more ‘prestigious’ jobs and therefore have higher stakes vis-à-vis their employer. These main findings are exposed to robustness checks to rule out rival explanations: that entry through a workplace insider merely reflects privileged access to job vacancy information; that workplace clustering results from preferences for working together or that the higher prevalence of referral for very young migrants that we observe may reflect that referral has an insurance dimension.Work Migration; Social Networks; Screening; Moral Hazard

Caste, local networks and lucrative jobs: Evidence from rural Nepal

We study how local connections to persons in influential positions affect access to lucrative international migrant jobs and attractive government employment. In rural Nepal, it would not be surprising if social status, captured by a household’s caste but also by wealth or education, strongly influenced or perhaps even exclusively determined the access to attractive labour market opportunities.  This is not the case. Although much of the variation in migration can be attributed to wealth, education and social identity, household networks have a separate impact on external employment. Well-connected households are more likely to get government jobs and appear to have favorable access to the manpower agencies and the informal loans required to finance migration to the Persian Gulf or Malaysia.  

How Middle-men can Undermine Anti-corruption Reforms

The anti-corruption reform in the Tanzanian tax bureaucracy in the mid-1990s was apparently a short-lived success. In the wake of the reform, a number of "tax experts" established themselves in the market, many of them being laid off tax bureaucrats. We argue that middle-men can undermine the effect of an anti-corruption reform by reducing the uncertainty that firms face vis-à-vis a reformed tax bureaucracy, which in turn may encourage firms to pay bribes rather than taxes. Indeed, under some circumstances, middle-men can cause corruption to be higher after the reform than before the reform. Since the demand for middle-men may increase with the extent of the reform, we also demonstrate that a small reform may be more efficient in combatting corruption than a more radical reform.Corruption Reform Middle-men Institutions Tanzania