DP15714 When Transparency Fails: Financial Incentives for Local Banking Agents in Indonesia
|Author(s):||Erika Deserranno, Gianmarco León-Ciliotta|
|Publication Date:||January 2021|
|Keyword(s):||financial incentives, pay transparency, Technology adoption|
|JEL(s):||D84, G28, J31, M52, O14|
|Programme Areas:||Development Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15714|
We study the effect of raising the level and the transparency of financial incentives offered to local agents for acquiring clients of a new banking product on take-up. We find that paying agents higher incentives increases take-up, but only when the incentives are unknown to prospective clients. When disclosed, higher incentives instead have no effect on take-up, despite greater agent effort. This is explained by the financial incentives conveying a negative signal about the reliability and trustworthiness of the product and its providers to potential clients. In contexts with limited information about a new technology, financial incentives can thus affect technology adoption through both a supply-side effect (more agent effort) as well as a demand-side signaling effect (change in demand perceptions). Organizations designing incentive schemes should therefore pay close attention to both the level and the transparency of such incentives.