American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Monitoring in Small Firms: Experimental Evidence from Kenyan Public Transit
American Economic Review
vol. 114,
no. 10, October 2024
(pp. 3119–60)
Abstract
Small firms struggle to grow beyond a few employees. We introduce monitoring devices into commuter minibuses in Kenya and randomize which minibus owners have access to the data using a novel mobile app. We find that treated vehicle owners modify the terms of the contract to induce higher effort and lower risk taking from their drivers. This reduces firm costs and increases firm profitability. There is suggestive evidence that some firms expand. These results suggest that small firms may be able to utilize monitoring technologies to overcome problems of moral hazard and enhance their profitability.Citation
Kelley, Erin M., Gregory Lane, and David Schönholzer. 2024. "Monitoring in Small Firms: Experimental Evidence from Kenyan Public Transit." American Economic Review, 114 (10): 3119–60. DOI: 10.1257/aer.20210987Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D82 Asymmetric and Private Information; Mechanism Design
- J41 Labor Contracts
- L25 Firm Performance: Size, Diversification, and Scope
- L92 Railroads and Other Surface Transportation
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology