Privatizing Public Services and Strategic Behavior: The Impact of Incentives to Reduce Workers’ Compensation Claim Duration
AbstractDuring the 1990s, the state of Ohio contracted out Workers’ Compensation (WC) case management, incorporating a large bonus payment intended to reward reduced claim duration. The bonus is essentially a decreasing function of average days away from work, excluding claims longer than 15 months. In response, duration is predicted to decrease for claims with moderate injuries and increase for some severe claims so that claimants miss more than 15 months of work and are excluded from the calculation. I find that contractors increased duration for severe claims but no evidence that contractors successfully reduced duration for moderate claims. However, contractors received large bonus payments. This is likely because the financial reward to merely excluding a small share of severe claims from the calculation of the bonus payment is large enough to enable TCMs to receive the full bonus. These contractor responses are inconsistent with state intentions, suggesting public entities should anticipate strategic behavior when crafting performance-based incentives.
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Bibliographic InfoPaper provided by Department of Economics, College of William and Mary in its series Working Papers with number 88.
Length: 49 pages
Date of creation: 27 Aug 2009
Date of revision: 18 Oct 2010
Workers' Compensation; Contracting Out; Privatization;
Find related papers by JEL classification:
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
- J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-11 (All new papers)
- NEP-CSE-2009-09-11 (Economics of Strategic Management)
- NEP-LAB-2009-09-11 (Labour Economics)
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