A key question in personnel economics is how best to motivate and incentivize workers. In this dissertation, I investigate how different incentive systems affect workers' effort and decision on where to work. Rewarding different aspects of workers' performance may allow firms to prioritize certain outcomes and may attract and retain different types of employees who are more or less drawn to particular contracts. Finally, certain incentive schemes may benefit or harm certain sub-groups of employees, especially when there is subjectivity introduced into the evaluation scheme.
In the first chapter, joint with Tahir Andrabi, we study whether performance incentives lead to sorting of teachers. Attracting and retaining high-quality teachers has a large social benefit, but it is challenging for schools to identify good teachers ex-ante. We use teachers' contract choices and a randomized controlled trial of performance pay with 7,000 teachers in 243 private schools in Pakistan to study whether performance pay affects the composition of teachers. Consistent with adverse selection models, we find that performance pay induces positive sorting: both among teachers with higher latent ability and among those with a more elastic effort response to incentives. Teachers also have better information about these dimensions of type than their principals. Using two additional treatments, we show effects are more pronounced among teachers with better information about their quality and teachers with lower switching costs. Accounting for these sorting effects, the total effect of performance pay on test scores is twice as large as the direct effect on the existing stock of teachers, suggesting that analyses that ignore sorting effects may substantially understate the effects of performance pay.
In the second chapter, joint with Tahir Andrabi, we investigate how different types of incentive pay affect employee behavior. A central challenge facing schools is how to incentivize teachers. While high-powered incentives can motivate effort, they can lead teachers to distort effort away from non-incentivized outcomes. This is one reason why most performance incentives allow for manager subjectivity. However, this subjectivity can introduce new concerns, including favoritism and bias. We study the effect of subjective versus objective performance incentives on teacher productivity using the same randomized controlled trial discussed in chapter 1. We estimate the effect of two performance raise treatments versus a control condition, in which all teachers receive the same raise. The first treatment arm is a "subjective" raise, in which principals evaluate teachers; the second treatment arm an "objective" raise based on student test scores. First, we show that both subjective and objective incentives are equally effective at increasing test scores. However, objective incentives decrease student socio-emotional development. Second, we show that these effects are likely driven by the types of behavior change we observe from teachers during classroom observations. In objective schools, teachers spend more time on test preparation and use more punitive discipline, whereas, in subjective schools, pedagogy improves. Finally, we investigate the mechanisms of these effects through the lens of a moral hazard model with multi-tasking. We exploit variation within each treatment to isolate the causal effect of contract noisiness and distortion on student outcomes. We then show that teachers perceive subjective incentives as less noisy and less distorted, and these contract features affect student outcomes, serving as key channels to explain the reduced form effects we see.
Finally, in the third chapter, I explore whether managers show gender bias in their evaluation of employees, and, if so, under what circumstances. Pakistan ranks in the lowest decile in female labor force participation, and even in sectors where women are more prevalent, such as teaching, they earn 70 cents for each dollar men earn. In this chapter, I test the extent to which statistical versus financial discrimination explains these pay gaps. I use the experiment from chapter 1 and 2, which has two important random variations: i). how often managers observe a given employee and ii). whether manager evaluations affect employee's pay or are just used for feedback and see whether this changes how managers evaluate their employees. I find that managers have less gender bias the more frequently they observe a given employee and more gender bias if there is a financial stake of the manager's evaluation.
While all three chapters use the same randomization design and data, each chapter is intended to be a stand-alone set of research questions, so the respective design and data description is included within each chapter.