In these times of budget cutting, government departments are looking into performance based funding schemes for public institutions, such as universities and hospitals, to obtain more output (research or patient care) for the same amount of total funds. A key difference from other applications of relative performance schemes lies in the fact that here the performance of institutions depends on their personnel who can move from one institution to another. Thus the incentives that are meant for individual researchers of doctors are provided via institutions and labor markets. This paper is a first attempt in the literature to look at such schemes.
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