Barriers to Organizational Performance: Experimental Evidence of the Importance of Relational Contracts

Abstract

Firms often fail to adopt organizational practices that improve their performance. Existing research suggests several reasons why this may occur: managers do not perceive the problem, do not understand what to do, are not motivated to act, or have difficulty in building relational contracts with workers. We conducted a large-scale field experiment on 12,761 small and medium enterprises to study how these four factors influence the adoption of workplace safety. We found that only the relational treatment, which emphasized mutual effort by managers and workers, was effective: it reduced the rate and severity of accidents and increased the types of safety training nudged by our treatment. The results are substantial and long-lasting, and stronger when treatment dosage is higher. The effect was enhanced when combined with the randomized manager motivational and understanding treatments, but not the perception treatment. This study provides evidence of the primal importance of relational contracts and suggests that the effects of manager motivation and understanding are insufficient without relational contracts in place for workforce safety practices.