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  5. Setting Up Your Own Firm for a Field Experiment
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Setting Up Your Own Firm for a Field Experiment

Paper Session

Monday, Jan. 4, 2021 12:15 PM - 2:15 PM (EST)

Hosted By: American Economic Association
  • Chairs:
  • David McKenzie, World Bank
  • Bo Cowgill, Columbia University

Agency and Workplace Diversity: Evidence from a Two-Sided Audit

Bo Cowgill
,
Columbia University
Patryk Perkowski
,
Columbia University

Abstract

Link to full paper

Whose preferences drive labor market sorting? We present a simple model of hiring that illustrates the role of intermediaries, worker preferences and employer preferences. These factors are unaccounted for in traditional resume audit studies, leading to ambiguity about interpretation. We introduce a novel field experimental paradigm (a "two-sided audit") to strengthen audit methodology. Our experimental paradigm allows researchers to measure key theoretical mechanisms, to improve statistical power, to address ethical critiques of audit studies, and to estimate the effects of employer policy changes. We then execute a two-sided audit study based on our theory model. Our design uses a prominent modern labor market intermediary (the recruitment process outsourcing industry) to create demand-side variation and to collect additional candidate outcomes. Our findings highlight the role of agency problems and intermediary incentives, which shape the distribution of workers' bargaining power. Career concerns lead recruiters to misallocate callbacks by catering to demand-side preferences for alumni of big companies and elite schools. These candidates are subject to lower standards of mutual interest and are thus "over-interviewed" relative to their probability of joining the firm. By granting more outside offers compared to the likelihood of joining, recruiters' career concerns change the distribution of candidates' negotiating leverage with employers.

Do Financial Concerns Make Workers Less Productive?

Supreet Kaur
,
University of California-Berkeley
Sendhil Mullainathan
,
University of Chicago
Suanna Oh
,
Paris School of Economics
Frank Schilbach
,
Massachusetts Institute of Technology

Abstract

We test whether increasing cash-on-hand raises the productivity of poor workers. Our motivation is psychological. Concerns about money can create mental burdens such as worry, stress, or sadness. These in turn could interfere with the ability to work effectively. We empirically test for this possibility using a field experiment with piece-rate manufacturing workers in India. We randomize the timing of income receipt, so that on a given day some workers have more cash-on-hand than others. This manipulation holds constant wages and piece rates, as well as human and physical capital. On cash-rich days, average productivity increases by 0.11 standard deviations (6.2%); this effect is concentrated among relatively poorer workers. Mistakes also decline on these days — an effect that is again concentrated among poorer workers. Having more cash-on-hand thus enables workers to work faster while making fewer errors, suggesting improved cognition. We argue that mechanisms such as gift exchange, trust, and nutrition cannot account for our findings. Instead, our results suggest a range of psychological mechanisms wherein alleviating financial concerns allows workers to be more attentive and productive at work.

Randomizing Relationships: Social Ties and Entrepreneurial Performance

Stefan Dimitriadis
,
University of Toronto
Rembrand Koning
,
Harvard Business School

Abstract

Recent field experiments demonstrate that advice, mentorship, and feedback from randomly assigned peers improve entrepreneurial performance. These results raise a natural question: what is preventing entrepreneurs and managers from forming these peer connections themselves? We argue that entrepreneurs may be under-networked because they lack the necessary social skills— the ability to communicate effectively and interact collaboratively with new acquaintances—that allow them to match efficiently with knowledgeable peers. We use a field experiment in the context of a business training program to test if a short social skills training module improves who the participants choose to learn from within the program. We find that entrepreneurs who were exposed to the social skills training formed 50% more relationships with peers. These relationships exhibited more matching based on managerial skill and were more ethnically diverse. Finally, the training also substantially increased entrepreneurs’ business performance. Our findings suggest that social skills help entrepreneurs build relationships that create value for both themselves and their peers.

Micro-Equity for Microenterprises

Suresh de Mel
,
University of Peradeniya
David McKenzie
,
World Bank
Christopher Woodruff
,
Oxford University

Abstract

In this paper the researchers set up a firm to be an equity investor in microfirms. Many microenterprises in developing countries have high returns to capital, but also face risky revenue streams. In principle, equity offers several advantages over debt when financing investments of this nature, but the use of equity in practice has been largely limited to investments in much larger firms. The authors develop a model contract to make self-liquidating, quasi-equity investments in microenterprises. This contract has three key parameters that can be used to shift risk between the entrepreneur and the investor, resulting in a continuum of contracts ranging from a debt-like contract that shifts little risk from the entrepreneur to a pure revenue-sharing contract in which the investor absorbs much more of the risk. The paper discusses implementation choices, and then provides lessons from a proof-of-concept carried out by making nine investments averaging $3,800 in Sri Lankan microenterprises. This pilot demonstrates that this new contract structure can work in practice, but also highlights the difficulties of micro-equity investments in an environment with weak contract enforcement.
Discussant(s)
Peter Cappelli
,
University of Pennsylvania
Chinmaya Kumar
,
University of Chicago
Karim Lakhani
,
Harvard Business School
Supreet Kaur
,
University of California-Berkeley
JEL Classifications
  • J0 - General
  • C9 - Design of Experiments