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When transparency fails: Financial incentives for local banking agents in Indonesia

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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.

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  • Erika Deserranno & Gianmarco León-Ciliotta & Firman Witoelar, 2021. "When transparency fails: Financial incentives for local banking agents in Indonesia," Economics Working Papers 1766, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1766
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    2. Buvinic, Mayra & Knowles, James C. & Witoelar, Firman, 2022. "The unfolding of women’s economic empowerment outcomes: Time path of impacts in an Indonesia trial," World Development, Elsevier, vol. 158(C).

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    More about this item

    Keywords

    financial incentives; pay transparency; technology adoption;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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