Abstract
We develop a relational contracting model to study the role of monitoring in firms andevaluate the model experimentally in the field. Specifically, we introduce monitoring devicesinto commuter minibuses in Nairobi, Kenya, that track real-time vehicle driving behavior anddaily productivity. We randomize which minibus owners have access to these monitoring datausing a novel mobile app that we designed for the industry. In line with model predictions,we find that treated vehicle owners modify the terms of the contract by decreasing the transferthey demand in exchange for higher effort and lower risk-taking. Drivers respond accordingly byworking more hours and decreasing risky driving behavior associated with higher repair costs.As a result, firm costs fall and profits increase. Structural estimation via simulated method ofmoments demonstrates a close match of the data to the contract model and suggests overallwelfare increases stemming from lower firm costs.
Abstract
Detailed quantitative evidence on the evolution of economic outcomes during the COVID-19 health crisis in low income countries remains scarce. We study the impact of COVID-19 lockdowns using phone surveys from a representative sample of businesses in one of the poorest regions in Kenya, allowing us to study trends over time. Revenues dropped by 55% from February to May 2020, layoffs have doubled, and an increasing number of households are facing food insecurity. Entrepreneurs and our earlier research indicate that cash transfers and business loans may be effective policies for mitigating the negative effects of the downturn.
This work is part of the Private Enterprise Development in Low Income Countries (PEDL) programme
Abstract
To examine the effects of COVID-19 on small-scale manufacturing firms, we have conducted a survey of 627 randomly chosen small-scale manufacturing firms in different parts of Ethiopia. The large majority of firms remain open. However, over 95% of firms have seen a decline in sales, by 55% on average, in September 2020 compared with the same period last year and layoffs have already occurred. Loss of customers due to mobility restrictions is reported as the biggest business challenge during the pandemic. Firms indicate that business loans are the most appropriate policy response to mitigate the negative impact of the pandemic on their business.