Research Hypothesis: A large body of theoretical and empirical evidence in economics indicates that self-control problems lead people to fall short of their personal goals (for reviews, see: Frederick et al, 2002; DellaVigna, 2009). If self-control problems influence behavior, they could have particularly important implications for the workplace by dampening worker productivity and leading individuals to earn less than they would like. In addition, they are likely to influence the optimal design of employment incentive contracts and how firms organize production (O'Donoghue and Rabin 2006; Clark 1994).
However, there is extremely scant empirical evidence on whether self-control problems actually matter for explaining worker behavior. This project fills this gap by undertaking the first field experiment testing for such problems in a workplace setting. In doing so, the project seeks to make an important contribution to the economics literature on self-control problems and to the incipient literature on the implications of self-control problems for workplace design.
Research Design: In economics, the self-control problem is often conceptualized as time inconsistency in preferences (Thaler and Shefrin, 1981; Laibson, 1997). If workers have self-control problems and are sophisticated about these problems, then time-inconsistency models offer four clear predictions: (i) workers will want to use commitment devices to get themselves to work hard in the future; (ii) their demand for commitment will be higher farther in advance of the work period; (iii) the availability of commitment devices will lead to increased effort; and (iv) their self-control problem will be less severe when earnings are paid in the same period as when work is performed.
This project will use this set of predictions to test for self-control problems in a field experiment on full-time data entry employees. Workers will be offered a choice between two incentive contracts. The first contract will pay a piece-rate wage of w for each unit of production. The commitment contract will let workers choose a target level for themselves, and pay them w for each unit of production if they meet their target and only pay w/2 if they fall short of it. Although a worker can never earn more under the commitment contract and may end up earning much less, workers with self-control problems may choose the commitment contract to bind themselves to work harder in the future. The experiment treatments will vary the timing of when the commitment contract is offered (the evening before the workday versus the morning of the workday), as well as when wages are paid. Outcomes on worker choice and production will be used to test the set of key predictions. If all four predictions hold, this will provide clear evidence that workers face self-control problems, and that workplace arrangements can increase worker effort and earnings by mitigating the self-control problem.
Broader Impacts: The optimal design of workplace arrangements changes significantly if workers have time-inconsistent preferences. Consequently, if the project demonstrates large quantitative effects of self-control problems, this would have important implications for how firms should incentivize their workers. It would also have ramifications for the design of government policies, such as job training programs that seek to reduce unemployment. In addition, these results would have implications for understanding labor markets?especially in developing countries where work arrangements are varied and include sharecropping, intermittent labor contracting, formal employment, and self-employment. Considering these arrangements through a self-control lens could deliver drastically new insights on labor market institutions, and on how the workplace can be structured to increase worker welfare.
When workers have self-control problems, they do not work as hard as they would like. This has implications for the design of the workplace: not just employers, but workers themselves, may value contracts that elicit more effort in the future. However, there is scant empirical evidence on self-control problems in the workplace and their implications for contract choice. To test the quantitative importance of self control at work, we performed a year-long field experiment with full-time data entry workers in India. In the study, workers' full-time earnings depended on how hard they worked—specifically, they were paid according to how many accurate fields they entered. We have three primary findings. First, workers select dominated contracts—which penalize low output but provide no greater reward for high output—36% of the time to motivate their future selves. We estimate that the use of these contracts increases worker output by the same amount as an 18% increase in the piece-rate wage. Second, workers increase effort as their (randomly assigned) weekly payday gets closer: output rises by 8% over the pay week. Third, both these effects—which provide separate tests for self-control problems in the same population of workers—are strongly positively correlated. Specifically, workers with larger payday effects are 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. We conclude that, at least in our setting, self-control problems distort worker effort at meaningful magnitudes; these problems lead some—but not all—workers to demand workplace features that will induce them to work harder in the future. This raises challenges for optimal contract design, since features that may solve self-control problems—such as rigid work hours or assembly lines—can improve the welfare of workers with self-control problems, but can also make workers without such problems worse off. Given our results, considering the role of self-control in optimal incentive design and the organization of production is a fruitful area for further research.
