Week 11 – Pierce et al. 2015 – Joe

Lamar Pierce, Daniel C. Snow, Andrew McAfee (2015) Cleaning House: The Impact of Information Technology Monitoring on Employee Theft and Productivity. Management Science 61(10):2299-2319.

Employee theft and fraud are widespread problems in firms, with workers stealing roughly $200 billion annually from U.S. firms to supplement their income. A growing empirical literature clarifies when and how theft and other misconduct occur but says little about the overall impact of firms’ use of forensics to monitor and reduce theft. This paper examines how firm investments in technology-based employee monitoring impact both misconduct and productivity by addressing three important yet unresolved questions: 1) is employee monitoring indeed effective in reducing theft, as economics suggests, or does monitoring demotivate and constrain employees and thus negate gains from theft reductions? 2) do possible gains from monitoring result from changing worker behavior or from replacing unethical workers with more honest ones? 3) if increased monitoring indeed reduces theft by existing workers, then through which mechanisms does productivity in other tasks change and what is the overall impact to the firm?

The paper initiates with phenomenon-driven questions while exploring the underlying mechanisms of economics, phycology, and behavior aspects using theft and sales data from 392 restaurant locations from five firms. After using a restaurant-level and individual worker-level Differences-in-Differences model, the authors find significant treatment effects in reduced theft and improved productivity. More, they dig more on the mechanism identification: the majority of productivity improvement and theft reduction is due to behavioral changes among existing workers rather than selection effects due to managers replacing problem workers revealed by the IT system. Furthermore, the authors explore the deeper mechanism: economic multi-tasking, cognitive multi-tasking, motivation from fairness or perceived increases of general oversight. Their results cast significant doubt on both the cognitive and economic multitasking mechanisms, and provide mixed evidence on fairness concerns. Although we cannot directly test for perceptions of increased productivity monitoring, this explanation seems most consistent with our results. Implications are also discussed.