The Economics of Telecommuting: Theory and Evidence

While there has been considerable research on the effect of telecommuting on worker’s productivity and quality of work life, there is considerably less work on the managerial problems associated with selecting, monitoring and compensating workers involved in telecommuting. We propose a model based on contract theory to analyze the managerial decisions on telecommuting, focusing on: 1) How managers should decide which workers will have the opportunity to telecommute, and 2) How managers should monitor and provide incentives to workers who participate in telecommuting programs. Based on the model, we find that managers’ willingness to allow telecommuting is related to the amount of information they have about their employees and that employees who telecommute should have incentives based both on subjective evaluations and objective measures. Using data from the 1998 Workplace Employment Relationship Survey (WERS98), we test these predictions and find that they are supported by the data.