Essays on incentives and information

The first paper computes the change in welfare associated with the introduction of incentives. Specifically, we calculate by how much the welfare gains of increased output due to incentives outweigh workers' disutility from increased effort. We accomplish this by studying the use of incentives by a firm in the check-clearing industry. Using this firm's production records, we model and estimate the worker's dynamic effort decision problem. This allows us to determine that the firm's incentive scheme has a large effect on productivity, raising it by 16% over the sample period. Using our parameter estimates, we show that the cost of increased effort due to incentives is equal to the dollar value of an 10% rise in productivity. Welfare is measured as the output produced minus the cost of effort, hence the net increase in welfare due to the introduction of the firm's bonus plan is 6%.; The second paper studies the firm's technology adoption decision in an dynamic environment where firms can chose between a known, deterministic production technology and an unknown, stochastic one. Firms learn about the quality of the stochastic technology through both private and public signals. Private signals, through a learning-by-doing effect, encourage firms to adopt the stochastic technology. Public signals, however, create an informational externality and so discourage firms from adoption. I find that in an environment with a mixture of both private and public signals, the public signal dominates in that firms under-adopt the stochastic technology relative to the social planner's problem. I also show that the combination of these signals has an unusual effect on firms' strategies—in environments with only one type of signal firms pursue pure strategies, while with both signals present, firms choose mixed strategies.