Monitoring in Small Firms: Experimental Evidence from Kenyan Public Transit
Erin M. Kelley, Gregory Lane, David Schönholzer
American Economic Review · 2024 · Volume 114 · Issue 10
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.
Keywords
Firm Behavior: Empirical Analysis, Production, Cost, Capital, Total Factor, and Multifactor Productivity, Capacity, Asymmetric and Private Information, Mechanism Design, Labor Contracts, Firm Performance: Size, Diversification, and Scope, Railroads and Other Surface Transportation, Industrialization, Manufacturing and Service Industries, Choice of Technology
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