Reducing Moral Hazard in Employment Relationships: Experimental Evidence on Managerial Control and Performance Pay / C. Kirabo Jackson, Henry S. Schneider.

Format:

Book

Author/Creator:

Jackson, C. Kirabo.

Contributor:

National Bureau of Economic Research.

Schneider, Henry S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19645.

NBER working paper series no. w19645

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Reducing Moral Hazard in Employment Relationships

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

Moral hazard is endemic to employment relationships and firms often use performance pay and managerial control to address this problem. While performance pay has received much empirical attention, managerial control has not. We analyze data from a managerial-control field experiment in which an auto-repair firm provided detailed checklists to mechanics and monitored their use. Revenue was 20 percent higher under the experiment. We compare this effect to that of quasi-experimental increases in mechanic commission rates. The managerial-control effect is equivalent to that of a 10 percent commission increase. We find evidence of complementarities between the two, suggesting benefits from an all-of-the-above approach. We also find evidence of incentive gaming under performance pay.

Notes:

Print version record

November 2013.