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The Role of Incentives in the Public Sector: Issues and Evidence

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Author Info
Simon Burgess
Marisa Ratto ()

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Abstract

Using incentive pay to improve public sector efficiency is an important component of the UK Government's public service modernisation agenda. In this paper, we review the important issues in performance pay in the public sector, and summarise the evidence on its effects. We consider how optimal incentives for public sector workers may differ from those in the private sector, and if so, what types of incentives are more appropriate for the public sector. We investigate the reasons for the infrequent use of explicit incentives in the public sector. We summarise evidence of particular relevance to the public sector, on issues such as the impact on output of incentive pay schemes, gaming and dysfunctional behaviour, multiple principals, intrinsic motivation and team-work. Finally, we comment on the design of new policies being introduced in the UK public sector in the light of the theoretical arguments and the evidence.

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Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 03/071.

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Length: 31 pages
Date of creation: May 2003
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Handle: RePEc:bri:cmpowp:03/071

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Keywords: incentives public sector

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Find related papers by JEL classification:
H4 - Public Economics - - Publicly Provided Goods
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pouliakas, Konstantinos & Theodossiou, Ioannis, 2004. "Confronting Objections to Performance Pay: A Study of the Impact of Individual and Gain-sharing Incentives on the Job Satisfaction of British Employees," MPRA Paper 1629, University Library of Munich, Germany, revised 31 Jan 2007. [Downloadable!]
  2. Bargain, Olivier & Melly, Blaise, 2008. "Public Sector Pay Gap in France: New Evidence Using Panel Data," IZA Discussion Papers 3427, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Francois, Patrick, 2005. "Making A Difference," CEPR Discussion Papers 5301, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Monojit Chatterji & Karen Mumford & Peter N. Smith, 2007. "The Public-Private Sector Gender Wage Differential: Evidence from Matched Employee-Workplace Data," IZA Discussion Papers 3158, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Patrick Francois, 2004. "'Making a Difference': Labor Donations in the Production of Public Goods," The Centre for Market and Public Organisation 04/093, Department of Economics, University of Bristol, UK. [Downloadable!]
  6. Marisa Ratto & Wendelin Schnedler, 2005. "Division of Labour and Directed Production," Working Papers 0421, University of Heidelberg, Department of Economics, revised Jul 2005. [Downloadable!]
    Other versions:
  7. Jana Vyrastekova & Sander Onderstal & Pierre Koning, 2006. "Team incentives in public organisations; an experimental study," CPB Discussion Papers 60, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  8. W.D. McCausland & K. Pouliakas & I. Theodossiou, 2005. "Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction," Labor and Demography 0505019, EconWPA. [Downloadable!]
  9. Burgess, Simon & Propper, Carol & Ratto, Marisa & Tominey, Emma, 2003. "Incentives in the Public Sector: Some Preliminary Evidence from a UK Government Agency," CEPR Discussion Papers 4010, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  10. Simon Burgess & Carol Propper & Marisa Ratto & Emma Tominey, 2004. "Incentives in the Public Sector: Evidence from a Government Agency," The Centre for Market and Public Organisation 04/103, Department of Economics, University of Bristol, UK. [Downloadable!]
  11. Burkhard Hehenkamp & Oddvar Kaarbøe, 2004. "When the Talented Should Receive Weaker Incentives: Peer Pressure in Teams," Discussion Papers in Economics 04_02, University of Dortmund, Department of Economics. [Downloadable!]
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