Investigators: CDEP Affiliate Supreet Kaur and Michael Kremer and Sendhil Mullainathan, both of Harvard University.
If workers have self-control problems, they will not work as hard as they would like. This changes the logic of agency theory by partly aligning the interests of the firm and worker: both will now value contracts that elicit more effort in the future. While the implications for contracting are potentially large, there is limited field evidence on whether self-control is relevant for the workplace.
Three findings from a year-long field experiment with data entry workers suggest the quantitative importance of self control at work. First, workers choose dominated contracts—which penalize low output but provide no greater reward for high output—36% of the time to motivate their future selves; use of these contracts increases output by the same amount as an 18% increase in the piece-rate. Second, effort increases as the (randomly assigned) payday gets closer: output rises 8% over the pay week; calibrations show that justifying this in an exponential discounting framework would require a 4% daily discount rate. Third, for both findings there is significant and correlated heterogeneity: workers with larger payday effects are both more likely to choose dominated contracts and show greater output increases under them. This correlation grows with experience, consistent with the hypothesis that workers learn about their self-control problems over time.
These results suggest workers will demand contracts that mitigate self-control problems. This is consistent with many common workplace features. In addition, this has implications for how we should understand increases in labor productivity as economies move from cottage industry to industrial production, where workplace arrangements can be used to mitigate self-control problems.
A working paper is available as CDEP-CGEG Working Paper No. 3. This project is affiliated with CDEP’s Firms and Innovation Initiative.