This paper studies learning among coworkers when incentives change. We use a simple principal-agent model to show that when workers are not fully informed on the global shape of the production function, (1) their effort choice changes over time as information is disclosed and processed and (2) changing incentives can trigger this learning process. We test this prediction using personnel data from an egg production plant in Peru. Exploiting a sudden change in the contract parameters, we find that workers learn from each other over the shape of the production function. This adjustment process is costly for the firm.

This article shows how input heterogeneity triggers productivity spillovers at the workplace. In an egg production plant in rural Peru, workers produce output combining effort with inputs of heterogeneous quality. Exploiting variation in the productivity of inputs assigned to workers, we find evidence of a negative causal effect of an increase in coworkers¿ daily output on own output and its quality. We show theoretically and suggest empirically that the effect captures free riding among workers, which originates from the way the management informs its dismissal decisions. Our study and results show that input heterogeneity and information on input quality contribute to determine the shape of incentives and have implications for human resource management, production management, and the interaction between the two. Counterfactual analyses show that processing information on inputs or changing their allocation among workers can generate significant productivity gains.