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

Open Access       

Authors: Erika Deserranno, Gianmarco León-Ciliotta and Firman Witoelar

The Review of Economics and Statistics, 1-45, July, 2023

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.

This paper originally appeared as Barcelona School of Economics Working Paper 1233