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Incentives in the Public Sector: Evidence from a Government Agency

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  • Burgess, Simon
  • Propper, Carol
  • Ratto, Marisa
  • Tominey, Emma

Abstract

This paper addresses a lack of evidence on the impact of performance pay in the public sector by evaluating a pilot scheme of incentives in a major government agency. The incentive scheme was based on teams and covered quantity and quality targets, measured with varying degrees of precision. We use data from the agency’s performance management system and personnel records plus matched labour market data. We focus on three main issues: whether performance pay matters for public service worker productivity, what the team basis of the scheme implies, and the impact of the differential measurement precision. We show that the use of performance pay had no impact at the mean, but that there was significant heterogeneity of response. This heterogeneity was patterned as one would expect from a free rider versus peer monitoring perspective. We found that the incentive scheme had a substantial positive effect in small teams, and a negative response in large teams. We found little impact of the scheme on quality measures, which we interpret as due to the differential measurement technology. We show that the scheme in small teams had non-trivial effects on output, and our estimates suggest that the use of incentive pay is much more cost effective than a general pay rise.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9071.

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Date of creation: Jul 2012
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Handle: RePEc:cpr:ceprdp:9071

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Keywords: Incentives; Performance; Personnel economics; Public Sector; Teams;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Incentives in the public sector: Some lessons from recent failures
    by Jed Friedman in Development Impact on 2013-01-30 18:13:32
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Eleni Karagiannaki, 2006. "Exploring the effects of integrated benefit systems and active labour market policies: evidence from Jobcentre Plus in the UK," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 6240, London School of Economics and Political Science, LSE Library.
  2. Propper, Carol & von Hinke Kessler Scholder, Stephanie & Tominey, Emma & Ratto, Marisa & Burgess, Simon, 2010. "Smarter Task Assignment or Greater Effort: the impact of incentives on team performance," Economics Papers from University Paris Dauphine 123456789/4727, Paris Dauphine University.
  3. Ratto, Marisa & Tominey, Emma & Vergé, Thibaud, 2012. "Team Structure and the Effectiveness of Collective Performance Pay," IZA Discussion Papers 6747, Institute for the Study of Labor (IZA).
  4. Roel Elk & Marc Steeg & Dinand Webbink, 2013. "Can Financial Incentives for Regional Education Authorities Reduce School Dropout?," De Economist, Springer, Springer, vol. 161(4), pages 367-398, December.
  5. Margaret Meyer & Florian Ederer & Richard Holden, 2013. "Gaming and Strategic Ambiguity in Incentive Provision," Economics Series Working Papers 640, University of Oxford, Department of Economics.
  6. Florian Ederer & Richard Holden & Margaret A. Meyer, 2014. "Gaming and Strategic Opacity in Incentive Provision," Levine's Working Paper Archive 786969000000000875, David K. Levine.
  7. Pierre Koning, 2009. "The effectiveness of Public Employment Service workers in the Netherlands," Empirical Economics, Springer, Springer, vol. 37(2), pages 393-409, October.
  8. Helen Simpson, 2007. "Productivity in Public Services," The Centre for Market and Public Organisation 07/164, Department of Economics, University of Bristol, UK.
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  10. Buurman, Margaretha & Dur, Robert, 2008. "Incentives and the Sorting of Altruistic Agents into Street-Level Bureaucracies," IZA Discussion Papers 3847, Institute for the Study of Labor (IZA).
  11. Francisco Pedraja Chaparro & Javier Salinas Jiménez & María del Mar Salinas Jiménez, 2005. "Los indicadores de gestión en el Sector Público," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(2), pages 109-129, July.
  12. Hasnain, Zahid & Manning, Nick & Pierskalla Henryk, 2012. "Performance-related pay in the public sector : a review of theory and evidence," Policy Research Working Paper Series 6043, The World Bank.
  13. Pierre Koning, 2006. "Measuring the effectiveness of Public Employment Service (PES) workers; an empirical analysis based on the performance outcomes of regional employment offices," CPB Discussion Paper 73, CPB Netherlands Bureau for Economic Policy Analysis.
  14. Carol Propper & Jack Britton, . "Does Wage Regulation Harm Kids? Evidence from English SchoolsAbstract: Teacher wages are commonly subject to centralised wage bargaining. This results in flat teacher wages across heterogeneous labour," The Centre for Market and Public Organisation 12/293, Department of Economics, University of Bristol, UK.
  15. Koning, Pierre & Heinrich, Carolyn J., 2010. "Cream-Skimming, Parking and Other Intended and Unintended Effects of Performance-Based Contracting in Social Welfare Services," IZA Discussion Papers 4801, Institute for the Study of Labor (IZA).
  16. Eleni Karagiannaki, 2006. "Exploring the effects of integrated benefit systems and active labour market policies: Evidence from Jobcentre Plus in the UK," CASE Papers case107, Centre for Analysis of Social Exclusion, LSE.

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