SAFE Visitors Program: Research Seminar - Fatemeh Momeni (University of Chicago)

When:19 July 2017
, 12:00
 - 13:00
Where:Room 1.27, House of Finance

Speaker: Fatemeh Momeni (University of Chicago)

Title: Upfront Payment: Pay a Little, or Don’t Pay at All

Abstract: This paper uses a natural field experiment to study how paying workers upfront affects misbehavior on the job. We hired over 2000 workers to work on a short task with opportunities to cheat, and randomized them into treatments across which we varied the share of the total wage that we paid upfront, between 0, 10%, 50% and 90%. While a higher upfront payment reduces the perceived costs of misbehavior and thus can increase cheating, paying workers upfront can induce a gift-exchange effect through which cheating may fall. The two channels operating in opposite directions leave the overall effect of upfront payments on misbehavior an empirical question, which our experiment sheds lights on. We find a U-shaped relationship between cheating and the share of wage paid up front, and show that a principal can reduce cheating by paying a small share (10%) of the total payment upfront. We show however, that it is never cost-effective for the principal to pay a large share (90%) of the total wage upfront. Our experimental design also allows us to provide insights into the curvature of the gift-exchange value of upfront payments. Our results imply that paying workers upfront induces a gift-exchange effect that is concave in the share of total wage that the principal pays upfront. 

 

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