Temporary versus Permanent Behavioral Responses

5 March 2014 at 11:40 am Peter G. Klein Leave a comment

| Peter Klein |

As a behavioral economics skeptic I was intrigued by a recent NBER paper on worker responses to a change in the employment contract. Rajshri Jayaraman, Debraj Ray, and Francis de Vericourt studied an Indian tea plantation that changed its employment contract to weaken pay-for-performance incentives and found, initially, a substantial increase in output, suggesting a “happy-is-productive” effect that would make the pop psychologists proud. “This large and contrarian response to a flattening of marginal incentives is at odds with the standard model, including one that incorporates dynamic incentives, and it can only be partly accounted for by higher supervisory effort. We conclude that the increase is a ‘behavioral’ response.”

Alas, the effect was only temporary, becoming entirely reversed within a few months:

In fact, an entirely standard model with no behavioral or dynamic features that we estimate off the pre-change data, fits the observations four months after the contract change remarkably well. While not an unequivocal indictment of the recent emphasis on “behavioral economics,” the findings suggest that non-standard responses may be ephemeral, especially in employment contexts in which the baseline relationship is delineated by financial considerations in the first place. From an empirical perspective, therefore, it is ideal to examine responses to a contract change over an substantial period of time.

This looks to me like a Hawthorne effect. Given that much of the empirical literature in behavioral social science uses relatively short time horizons, I wonder how many of the findings can be explained this way? How many key “behavioral” results are short-term responses to changing management practices, workplace conditions, the employment contract, etc., rather than indicators of something more substantial about human behavior and motivation?