Multi-Task Moral Hazard Trade-off

In Simple Words

Imagine a fruit farmer paying workers solely by the weight of apples picked; workers will aggressively shake trees to gather heavy apples quickly, bruising the branches and ruining the orchard's future yields. Tying rewards exclusively to easily countable results forces workers to sacrifice long-term quality and unmeasured care just to max out their immediate score.

Research question

When employees are tasked with multidimensional production functions, output-based incentives cause effort diversion away from non-measurable outcomes toward incentivized metrics. In education, objective test score incentives increase test performance but harm students' socio-emotional development and love of learning.

Participants

N = 15,418 students across 234 private schools in Pakistan (grades 4–13).

Study Design

Randomized controlled trial (RCT) comparing flat-raise controls, subjective performance raises, and objective test-score-based raises over an 18-month review cycle.

Results

Objective incentives reduced student love of learning (p = 0.08) and overall socio-emotional development relative to subjective incentives by 0.05 standard deviations (p < 0.10), while increasing student desire to leave the school by 0.086 standard deviations (p < 0.10).

Takeaway

Design compensation contracts that incorporate qualitative manager evaluations alongside quantitative benchmarks to preserve effort across non-measurable performance dimensions.

Read alongside the research

Plain-English glossary

Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.

Randomized controlled trial

A study that uses chance, like drawing lots, to decide who receives each option being compared. Researchers compare the groups’ outcomes to estimate the effect of those options.

ExampleA lottery assigns volunteers to a training programme or a comparison group. Researchers then compare their outcomes.

GET-IT glossary · Randomized study ↗Read more about randomized controlled trial →

Related findings

• Incentive-Driven Pedagogical Distortion →Education

  Think of a restaurant manager who pays chefs purely by how many dishes they pump out per hour; chefs will stop garnishing plates and making complex sauces, switching entirely to microwaving pre-made meals. Similarly, when teachers are paid strictly on test scores, they replace interactive and joyful instruction with drill-and-kill test preparation to maximize immediate measurable output.

• Academic Grade-Incentivized Curriculum Compliance →Education

  Linking software progress to a real school report card acts like a mandatory gate on a turnstile. Students must complete digital quizzes and modules because their software performance directly impacts their overall grade in an established class like computer science.

• Academic Remediation Inefficacy in Postsecondary Persistence →Education

  Standard developmental remediation is like forcing aspiring drivers to complete months of classroom parking simulations before letting them drive on real roads. Because the simulations take time and money without moving drivers closer to their destination, most drivers become discouraged and quit driving before ever reaching the main highway.

• Administrative Algorithmic Dropout Targeting →Education

  Instead of waiting for students to start failing classes, administrators analyze prior middle school report cards and standardized admission test scores before the academic year begins to calculate an individual risk score. This functions like a health screening questionnaire at a hospital lobby that flags patients with elevated blood pressure before an acute cardiac event takes place.