A TEST FOR MORAL HAZARD IN THE LABOR-MARKET - CONTRACTUAL ARRANGEMENTS, EFFORT, AND HEALTH

Moral hazard plays a central role in many models depicting contractual relationships involving worker effort. We show how time-series information on worker health, consumption and work time can be used to measure the effort effects of payment schemes. Estimates from longitudinal data describing farming rural households indicate that time-wage payment schemes and share-tenancy contracts reduce effort compared to piece-rate payment schemes and on-farm employment. The evidence also indicates, consistent with moral hazard, that the same workers consume more calories under a piece-rate payment scheme or in on-farm employment than when employed for time wages.