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

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Jackson, C. Kirabo

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w19645.Publication details: Cambridge, Mass. National Bureau of Economic Research 2013.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w19645 (Browse shelf(Opens below))	Not For Loan

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November 2013.

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.