Monitoring in Small Firms: Experimental Evidence from Kenyan Public Transit

Erin M. Kelley, Gregory Lane and David Schönholzer

American Economic Review, 2024, vol. 114, issue 10, 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.

JEL-codes: D22 D24 D82 J41 L25 L92 O14 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1257/aer.20210987

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