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Incentives and their dynamics in public sector performance management systems

  • Carolyn J. Heinrich

    (Professor and Director, La Follette School of Public Affairs, University of Wisconsin-Madison)

  • Gerald Marschke

    (Associate Professor, Department of Public Administration and Policy and Department of Economics, State University of New York at Albany, Faculty Research Fellow at NBER, and Research Fellow at IZA)

We use the principal-agent model as a focal theoretical frame for synthesizing what we know, both theoretically and empirically, about the design and dynamics of the implementation of performance management systems in the public sector. In this context, we review the growing body of evidence about how performance measurement and incentive systems function in practice and how individuals and organizations respond and adapt to them over time, drawing primarily on examples from performance measurement systems in public education and social welfare programs. We also describe a dynamic framework for performance measurement systems that takes into account strategic behavior of individuals over time, learning about production functions and individual responses, accountability pressures, and the use of information about the relationship of measured performance to value added. Implications are discussed and recommendations derived for improving public sector performance measurement systems. © 2010 by the Association for Public Policy Analysis and Management.

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File URL: http://hdl.handle.net/10.1002/pam.20484
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.

Volume (Year): 29 (2010)
Issue (Month): 1 ()
Pages: 183-208

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Handle: RePEc:wly:jpamgt:v:29:y:2010:i:1:p:183-208
Contact details of provider: Web page: http://www3.interscience.wiley.com/journal/34787/home

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  1. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  2. Pascal Courty & Gerald Marschke, 2008. "A General Test for Distortions in Performance Measures," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 428-441, August.
  3. George Baker & Robert Gibbons & Kevin J. Murphy, 1993. "Subjective Performance Measures in Optimal Incentive Contracts," NBER Working Papers 4480, National Bureau of Economic Research, Inc.
  4. Brian A. Jacob & Steven D. Levitt, 2003. "Rotten Apples: An Investigation of the Prevalence and Predictors of Teacher Cheating," NBER Working Papers 9413, National Bureau of Economic Research, Inc.
  5. Carolyn J. Heinrich, 2007. "False or fitting recognition? The use of high performance bonuses in motivating organizational achievements," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(2), pages 281-304.
  6. James J. Heckman & Jeffrey A. Smith & Christopher Taber, 1996. "What Do Bureaucrats Do? The Effects of Performance Standards and Bureaucratic Preferences on Acceptance into the JTPA Program," NBER Working Papers 5535, National Bureau of Economic Research, Inc.
  7. Jesse Rothstein, 2008. "Teacher Quality in Educational Production: Tracking, Decay, and Student Achievement," NBER Working Papers 14442, National Bureau of Economic Research, Inc.
  8. Courty, Pascal & Kim, Do Han & Marschke, Gerald, 2009. "Curbing Cream-Skimming: Evidence on Enrolment Incentives," CEPR Discussion Papers 7121, C.E.P.R. Discussion Papers.
  9. Heckman, James J. & Heinrich, Carolyn J. & Smith, Jeffrey A., 2002. "The Performance of Performance Standards," IZA Discussion Papers 525, Institute for the Study of Labor (IZA).
  10. Cory Koedel & Julian Betts, 2010. "Value Added to What? How a Ceiling in the Testing Instrument Influences Value-Added Estimation," Education Finance and Policy, MIT Press, vol. 5(1), pages 54-81, January.
  11. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
  12. Figlio, David N. & Rouse, Cecilia Elena, 2006. "Do accountability and voucher threats improve low-performing schools?," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 239-255, January.
  13. Gerald Marschke & Pascal Courty, 2002. "Dynamics of Performance Measurement Systems," Discussion Papers 02-09, University at Albany, SUNY, Department of Economics.
  14. George A. Akerlof & Rachel E. Kranton, 2005. "Identity and the Economics of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 9-32, Winter.
  15. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  16. Pascal Courty & Gerald Marschke, 2003. "Making Government Accountable: Lessons from a Federal Job Training Program," The Centre for Market and Public Organisation 03/083, Department of Economics, University of Bristol, UK.
  17. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 285-300, Summer.
  18. Gerald Marschke & Pascal Courty, 2000. "An Empirical Investigation of Gaming Responses to Performance Incentives," Discussion Papers 00-12, University at Albany, SUNY, Department of Economics.
  19. repec:mpr:mprres:2952 is not listed on IDEAS
  20. Bruno S. Frey & Matthias Benz, 2005. "Can Private Learn from Public Governance?," Economic Journal, Royal Economic Society, vol. 115(507), pages F377-F396, November.
  21. Richard M. Walker & George A. Boyne, 2006. "Public management reform and organizational performance: An empirical assessment of the U.K. Labour government's public service improvement strategy," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(2), pages 371-393.
  22. Brian A. Jacob & Lars Lefgren, 2005. "Principals as Agents: Subjective Performance Measurement in Education," NBER Working Papers 11463, National Bureau of Economic Research, Inc.
  23. Sass, Tim R. & Semykina, Anastasia & Harris, Douglas N., 2014. "Value-added models and the measurement of teacher productivity," Economics of Education Review, Elsevier, vol. 38(C), pages 9-23.
  24. Patrick Francois & Michael Vlassopoulos, 2008. "Pro-social Motivation and the Delivery of Social Services," CESifo Economic Studies, CESifo, vol. 54(1), pages 22-54, March.
  25. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
  26. Kevin Murdock, 2002. "Intrinsic Motivation and Optimal Incentive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 650-671, Winter.
  27. Derek Neal & Diane Whitmore Schanzenbach, 2007. "Left Behind By Design: Proficiency Counts and Test-Based Accountability," NBER Working Papers 13293, National Bureau of Economic Research, Inc.
  28. Canice Prendergast, 2007. "The Motivation and Bias of Bureaucrats," American Economic Review, American Economic Association, vol. 97(1), pages 180-196, March.
  29. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK.
  30. Heckman, James J & Heinrich, Carolyn & Smith, Jeffrey, 1997. "Assessing the Performance of Performance Standards in Public Bureaucracies," American Economic Review, American Economic Association, vol. 87(2), pages 389-95, May.
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