Speaker: Sendhil Mullainathan, Harvard University
Organized by: Department of Economics
Abstract: Self-control problems change the logic of agency theory: workers not only fail to work as hard as employers would like, they fail to work as hard as they themselves would like. In response, firms can use incentive pay to affect the self-control problem, not just moral hazard. We describe the results of a year-long field experiment on data entry workers designed to test the empirical importance of these ideas. First, we find that workers will choose dominated contracts—which pay less for every output level but have a steeper slope—in order to motivate themselves. Second, their effort increases significantly as the (randomly assigned) payday gets closer. Third, these two effects are linked: the demand for dominated contracts (and their benefits) is concentrated amongst those with the highest payday effects. Finally, as workers gain experience, they appear to learn about their self control problems: the correlation between the payday effect and the demand for the dominated contract grows with experience. Both payday and contract effects are quantitatively large in magnitude when benchmarked against the impact of a change in the slope of incentives or of a year of education. These results together suggest that selfcontrol, in this context at least, meaningfully alters the firm’s contracting problem.