Yuki Higuchi (Nagoya City University) on "Incentives, Self-selection, and Social Norms in the Labor Contract: A Two-stage Field Experiment in the Philippines" (with J. Goto)

This paper decomposes productivity difference between fixed wage (FW) contract and individual piece rate (IPR) contract into self-selection and incentive effects, using unique two-stage field experiment. We offered an option of switching to IPR contract for agricultural workers in the Philippines, whose default option has traditionally been FW contract, and we converted random half of those who opted for IPR contract back to the original FW contract. By comparing three groups, i.e., those who chose and worked under IPR contract, those who chose IPR but worked under FW contract, and those who chose and worked under FW contract, we find that the self-selection effects accounts for 60% of the productivity difference between the two types of contract. By combining with the data collected from lab-in-the field experiment, we find that the choice of IPR contract is associated with social norm parameters, namely, inequity aversion and kinship tax rate. Exploiting our random group assignment, we also find that the influence of social norm is particularly strong when the workers have high probability of repeated interaction with other group members, suggesting the presence of a norm enforcement mechanism in an agrarian community