How do contract types and incentives influence driver behavior?−An analysis of the Kigali bus network

The rapidly growing city of Kigali has a bus network that is undergoing increased development as underlined in its Transport Master Plan. Two schemes of bus driver remuneration coexist in the city: One constitutes a hybrid salary and commission system, while the other pays a fixed monthly salary. This paper examines the effect of these differing compensation schemes on driver behavior in Kigali using survey data from 2019. The analysis applies linear models incorporating various aspects of driver behavior in a principal-agent framework. The results indicate that the performance-based compensation scheme is associated with higher per-trip passenger fluctuation and faster driving (possibly due to drivers aiming to accrue a higher income) compared to the fixed-wage system. Policy implications comprise the inclusion of further criteria in incentive contracts to internalize potential negative externalities on society, e.g., to hinder the endangerment of passenger safety by appropriately incentivizing drivers. In conclusion, bus drivers who are compensated by performance are more likely to alter their behavior, responding to the incentive scheme through several channels.

Recruitment, Effort, and Retention Effects of Performance Contracts for Civil Servants: Experimental Evidence from Rwandan Primary Schools

This paper reports on a two-tiered experiment designed to separately identify the selection and effort margins of pay for performance (P4P). At the recruitment stage, teacher labor markets were randomly assigned to a “pay-for-percentile” or fixed-wage contract. Once recruits were placed, an unexpected, incentive-compatible, school-level re-randomization was performed so that some teachers who applied for a fixed-wage contract ended up being paid by P4P, and vice versa. By the second year of the study, the within-year effort effect of P4P was 0.16 standard deviations of pupil learning, with the total effect rising to 0.20 standard deviations after allowing for selection. (JEL C93, I21, J23, J33, J41, J45, O15)

Charitable Contribution Matching and Effort-Elicitation

We examine the effect of a charitable contribution matching (CCM) program on employee effort. In CCM programs, employers commit to match employees' donations to charity. We expect CCM to activate a norm of other-regarding behavior, inducing employees to increase effort to benefit their employer. Experimental results robustly support our expectation. We find that CCM increases effort under both fixed-wage and performance-based incentive contracts. Further, our results suggest CCM is more effective at eliciting effort than alternative uses of firm capital. Specifically, CCM is more effective at eliciting effort than the firm allocating an equivalent amount of capital to either direct firm charitable giving or increased performance-based pay. Our study suggests that CCM has efficient and robust effort-elicitation benefits that increase its value as a compensation tool incremental to any initial employee selection benefits from CCM and any effort benefits from firms' direct charitable giving.

The Wage System of the Novaya Zemlya and Spitsbergen Trapping Artels in the 19th – Beginning of the 20th century

Introduction. The Arkhangelsk North natural and climatic conditions promoted to develop shipbuilding, fishing, hunting and other activities, for which artels were organizing. The Pomors also united in artels for profitable trapping on Novaya Zemlya and Spitsbergen in the 19th – beginning of the 20th century. The usage of the artel principles of labour organization can be explained by the difficult circumstances of the hunting activities. It was impossible to work by oneself or by a small group of 2–7 trappers. The studying of the Novaya Zemlya and Spitsbergen trapping artels is necessary for further understanding of the process of the Arctic exploration by Russia in the 19th – beginning of the 20th century. The purpose of the article is to study the wage system of the Novaya Zemlya and Spitsbergen trapping artels in the 19th – beginning of the 20th century. Materials and Methods. The materials for this article were archive sources of the Arkhangelsk oblast State archive, published sources on the Novaya Zemlya and Spitsbergen artels and articles in the local periodicals. The historical-systematic and historical-genetic methods were used in the article. Results. During the 19th – beginning of the 20th century the principle when trappers united in artels continued to exist. The main form of the payment was to divide the catch into shares. Discussion and Conclusions. The main difference between artel trapping of people from the Arkhangelsk province districts consisted in terms of sailing to the archipelagoes and the beginning of the hunt. The decrease of number of trappers in artels determined by economic opportunities of the sponsors (the masters). Also, it was determined by decrease of the number of industry animals. Both unfixed (by shares) and fixed wage systems existed in the Novaya Zemlya and Spitsbergen artels. The quantity of shares exceeded the number of artel members. The master defined value of share before the beginning of the hunt. Also, he provided necessary provision and weapons for artel members with both unfixed and fixed wages. The most common way of sharing of catch meant that the master had been earning two thirds of it and the trappers had been earning the rest one third. This way of sharing was used before the beginning of the 20th century.

The Behavioral Promise and Pitfalls in Compensating Store Managers

Compensation systems have rapidly been shifting away from a fixed wage contractual payment basis. Many companies today are creating incentive compensation contracts to reward hard-working employees for jobs done well. Profit sharing (“sharing compensation contract”) and target with bonus (“target compensation contract”) are two common performance-based compensation contracts prevalent in business. We theoretically and behaviorally study the sharing and target compensation contracts in an operational context where a firm sets the parameters of the compensation contracts and a store manager, after observing the compensation contract offered to him, chooses his effort level (unobservable by the firm) and makes ordering decisions for the store. Our experimental data suggest systematic deviations from the theoretical benchmark and reveal behavioral promise and pitfalls under the two compensation contracts. In particular, the store manager is more willing to exert high effort under the target contract all else being equal. However, the store manager is also more likely to punish the firm for perceived “unfair” offers by submitting an extremely low order quantity. We find that bounded rationality plays an important role in driving a higher effort rate under the target contract than the sharing contract. We introduce a new formulation of the fairness concerns, which is referred to as by-state fairness, where individuals, rather than considering whether the expected profits received are fair, consider the fairness in the potential realized outcomes. This new formulation explains why managers are more likely to order very little to punish the firm under the target contract. In addition, we conduct validation experiments to verify our behavioral explanation. This paper was accepted by Jayashankar Swaminathan, operations management.

Recruitment, Effort, and Retention Effects of Performance Contracts for Civil Servants: Experimental Evidence from Rwandan Primary Schools

This paper reports on a two-tiered experiment designed to separately identify the selection and effort margins of pay-for-performance (P4P). At the recruitment stage, teacher labor markets were randomly assigned to a pay-for-percentile or fixed-wage contract. Once recruits were placed, an unexpected, incentive-compatible, school-level re-randomization was performed, so that some teachers who applied for a fixed-wage contract ended up being paid by P4P, and vice versa. By the second year of the study, the within-year effort effect of P4P was 0.16 standard deviations of pupil learning, with the total effect rising to 0.20 standard deviations after allowing for selection.

A NOTE ON THE UNIQUENESS OF STEADY-STATE EQUILIBRIUM UNDER STATE-DEPENDENT WAGE SETTING

Does wage setting exhibit strategic complementarity and produce multiple equilibria? This study constructs a discrete-time New Keynesian model in which households choose the timing of their wage adjustments endogenously subject to fixed wage-setting costs. I explore steady-state equilibrium of the state-dependent wage-setting model both analytically and numerically. For reasonable parameter values, complementarity in wage setting is weak and the steady-state equilibrium is unique.

Job Insecurity

We examine the relationship between job security and productivity in a fixed wage worker­firm relationship facing match quality uncertainty. The worker’s action affects both learning and current productivity. The firm, seeing worker behavior and outcomes, makes a firing decision. As bad news accrues, the firm cannot commit to retain the worker. This creates perverse incentives: the worker strat egically slows learning, harming productivity. We fully characterize the unique equilibrium in our continuous time game. Consistent with some evidence in organizational psychology, the relationship between job insecurity and productivity is U shaped: a worker is least productive when his job is moderately secure. (JEL J23, J24, J63, M51)

New laws offer hope for Mexico’s domestic workers

Subject Domestic workers' rights. Significance The Senate on May 14 passed a bill granting labour rights to Mexico’s 2 million domestic workers. The changes grant such employees the same rights as other salaried workers, including compulsory affiliation to the Mexican Social Security Institute (IMSS), which provides health care and other benefits, a contract, a fixed wage and maximum working hours. President Andres Manuel Lopez Obrador (AMLO) will now sign the bill into law, though the provisions amending the Federal Labour Law (LFT) and the Law of the Social Security Institute (LSS) will not come into effect till 2020. Impacts The reforms will have only a limited impact in reducing informal employment, which accounts for 56.9% of workers (30.8 million people). IMSS affiliation would immediately benefit some 30% of domestic workers who used to be covered by the dismantled Seguro Popular. Mexico is yet to ratify the International Labour Organisation (ILO) Convention on Domestic Workers; it is unclear whether or when it will.

Fixed-Wage Contracts and Monetary Non-neutrality

We study the importance of wage rigidities for the monetary policy transmission mechanism. Using uniquely rich micro data on Swedish wage negotiations, we isolate periods when the labor market is covered by fixed-wage contracts. Importantly, negotiations are coordinated in time but their seasonal patterns are far from deterministic. Using a two-regime VAR model, we document that monetary policy shocks have a larger impact on production during fixed-wage episodes as compared to the average response. The results do not seem to be driven by the periodic structure, nor the seasonality, of the renegotiation episodes. (JEL E23, E24, E52, J31, J41)