Abstract

http://ssrn.com/abstract=2355651
 


 



Reducing Moral Hazard in Employment Relationships: Experimental Evidence on Managerial Control and Performance Pay


C. Kirabo Jackson


Northwestern University

Henry S. Schneider


Cornell University - S.C. Johnson Graduate School of Management

November 2013

NBER Working Paper No. w19645

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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Number of Pages in PDF File: 54

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Date posted: November 16, 2013  

Suggested Citation

Kirabo Jackson, C. and Schneider, Henry S., Reducing Moral Hazard in Employment Relationships: Experimental Evidence on Managerial Control and Performance Pay (November 2013). NBER Working Paper No. w19645. Available at SSRN: http://ssrn.com/abstract=2355651

Contact Information

C. Kirabo Jackson (Contact Author)
Northwestern University ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
Henry S. Schneider
Cornell University - S.C. Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
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