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

Deserranno, Erika; León-Ciliotta, Gianmarco; Witoelar, Firman

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

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Deserranno, E, León-Ciliotta, G, Witoelar, F. When transparency fails: Financial incentives for local banking agents in Indonesia. 2021. handle: http://hdl.handle.net/10230/68540

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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.