When Transparency Fails: Financial Incentives for Local Banking Agents in Indonesia

We study the effect of raising the level and 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 and usage, but only when the incentives are unknown to prospective clien...

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Bibliographic Details
Published in:The review of economics and statistics 2023-07, p.1-45
Main Authors: Deserranno, Erika, León-Ciliotta, Gianmarco, Witoelar, Firman
Format: Article
Language:English
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Summary:We study the effect of raising the level and 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 and usage, but only when the incentives are unknown to prospective clients. When disclosed, higher incentives have no effect on take-up and usage, despite greater agent effort. This is due to the financial incentives sending a negative signal to potential clients about the reliability and trustworthiness of the product. Hence, when designing incentives, organizations should consider both their level and transparency.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest_a_01359