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Cream-Skimming, Parking and Other Intended and Unintended Effects of Performance-Based Contracting in Social Welfare Services

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  • Koning, Pierre

    ()
    (VU University Amsterdam)

  • Heinrich, Carolyn J.

    ()
    (University of Texas at Austin)

Abstract

In a growing number of countries, the delivery of social welfare services is contracted out to private providers, and increasingly, using performance-based contracts. Critics of performance-based incentive contracts stress their potential unintended effects, including cream-skimming and other gaming activities intended to raise measured performance outcomes. We analyze the incentive effects of performance-based contracts, as well as their impacts on provider job placement rates, using unique data on Dutch cohorts of unemployed and disabled workers that were assigned to private social welfare providers in 2002-2005. We take advantage of variation in contract design over this period, where procured contracts gradually moved from partial performance-contingent pay to contracts with 100%-performance contingent reward schemes, and analyze the impact of these changes using panel data that allow us to control for cohort types and to develop explicit measures of selection into the programs. We find evidence of cream-skimming and other gaming activities on the part of providers but little impact of these activities on job placement rates. Overall, moving to a system with contract payments fully contingent on performance appears to increase job placements for more readily employable workers, although it does not affect the duration of their jobs.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4801.

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Length: 52 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4801

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Keywords: social welfare; performance contracting;

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References

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  1. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier.
  2. Peter Tergeist & David Grubb, 2006. "Activation Strategies and the Performance of Employment Services in Germany, the Netherlands and the United Kingdom," OECD Social, Employment and Migration Working Papers 42, OECD Publishing.
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  4. Ladd, Helen F., 1999. "The Dallas school accountability and incentive program: an evaluation of its impacts on student outcomes," Economics of Education Review, Elsevier, Elsevier, vol. 18(1), pages 1-16, February.
  5. Gerald Marschke & Pascal Courty, 2000. "An Empirical Investigation of Gaming Responses to Performance Incentives," Discussion Papers, University at Albany, SUNY, Department of Economics 00-12, University at Albany, SUNY, Department of Economics.
  6. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 03/071, Department of Economics, University of Bristol, UK.
  7. Heckman, James J. & Smith, Jeffrey A., 2003. "The Determinants of Participation in a Social Program: Evidence from a Prototypical Job Training Program," IZA Discussion Papers 798, Institute for the Study of Labor (IZA).
  8. Burgess, Simon & Propper, Carol & Ratto, Marisa & Tominey, Emma, 2012. "Incentives in the Public Sector: Evidence from a Government Agency," IZA Discussion Papers 6738, Institute for the Study of Labor (IZA).
  9. Courty, Pascal & Kim, Do Han & Marschke, Gerald, 2008. "Curbing Cream-Skimming: Evidence on Enrolment Incentives," IZA Discussion Papers 3909, Institute for the Study of Labor (IZA).
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  11. Bruttel, Oliver, 2005. "Contracting-out and governance mechanisms in the public employment service," Discussion Papers, Research Unit: Labor Market Policy and Employment SP I 2005-109, Social Science Research Center Berlin (WZB).
  12. Pierre Koning, 2009. "Contracting welfare-to-work services: use and usefulness," CPB Discussion Paper 135, CPB Netherlands Bureau for Economic Policy Analysis.
  13. Per Skedinger & Barbro Widerstedt, 2007. "Cream skimming in employment programmes for the disabled? Evidence from Sweden," International Journal of Manpower, Emerald Group Publishing, Emerald Group Publishing, vol. 28(1), pages 694 - 714, November.
  14. Carolyn J. Heinrich & Gerald Marschke, 2010. "Incentives and their dynamics in public sector performance management systems," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(1), pages 183-208.
  15. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 69-85, January.
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  17. Bernhard, Sarah & Wolff, Joachim, 2008. "Contracting out placement services in Germany : is assignment to private providers effective for needy job-seekers?," IAB Discussion Paper 200805, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  18. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  19. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 19(2), pages 285-300, Summer.
  20. Weber, Andrea, 2008. "Individual Incentives in Program Participation: Splitting up the Process in Assignment and Enrollment," IZA Discussion Papers 3404, Institute for the Study of Labor (IZA).
  21. Trevor L. Brown & Matthew Potoski, 2003. "Managing contract performance: A transaction costs approach," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 22(2), pages 275-297.
  22. Heckman, James J & Smith, Jeffrey, 1997. "Making the Most Out of Programme Evaluations and Social Experiments: Accounting for Heterogeneity in Programme Impacts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(4), pages 487-535, October.
  23. Pierre Koning, 2007. "Non-profit provision of job training and mediation services; an empirical analysis using contract data of job training service providers," CPB Discussion Paper 94, CPB Netherlands Bureau for Economic Policy Analysis.
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Cited by:
  1. Behaghel, Luc & Crépon, Bruno & Gurgand, Marc, 2012. "Private and Public Provision of Counseling to Job-Seekers: Evidence from a Large Controlled Experiment," IZA Discussion Papers 6518, Institute for the Study of Labor (IZA).
  2. Krug, Gerhard & Stephan, Gesine, 2013. "Is the Contracting-Out of Intensive Placement Services More Effective than Provision by the PES? Evidence from a Randomized Field Experiment," IZA Discussion Papers 7403, Institute for the Study of Labor (IZA).
  3. Koning, Pierre & van de Meerendonk, Arthur, 2012. "The Impact of Scoring Weights on Price and Quality Outcomes: An Application to the Procurement of Welfare-to-Work Contracts," IZA Discussion Papers 7116, Institute for the Study of Labor (IZA).

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