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

Vol: 
2021/04
Author name: 
Erika Deserranno
Gianmarco León-Ciliotta
Firman Witoelar
Year: 
2021
Month: 
March
Abstract: 

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. JEL Codes: J31, D84, M52, O14, G28 Keywords: Financial incentives; pay transparency; technology adoption

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