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Working Paper 196 - Uses and Abuses of Per-diems in Africa- A Political Economy of Travel Allowances

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An increasing amount of publicspending in Africa is allocated toper-diems as acore instrument ofthe incentive structure. These aremainly given to provide financialincentives to employees in order toincrease their motivation to attendmeetingsor travel for workmissions. Anecdotal as well assystematic evidence from manycountries and projects suggeststhat abuse of per-diemsisbecomingtherule rather thantheexception;whichdistorts the impact ofdevelopment efforts. At a time whenthe efficiency and effectiveness ofpublic spending features high onthe political and developmentagendas, improving the efficiency ofthe management of per-diems couldhaveamajor impact on publicfinances andonattainment ofdevelopment goals. Unfortunatelythis topic has been largelyunexplored and little has beenwritten on the subject. Thispaperexamines the political economy ofper-diems in the African context. Itrevisits the conception of per-diemson the continent, scans the extent towhich per-diems are used andabused, and proposes a conceptualframework that could help tomodelingthe mechanism throughwhich the per-diems paymentinfluences motivations andbehaviors.The paper argues that although perdiems are in many cases justifiedpayment, the current practices aremoving from being part of thesolution to becoming part of theproblem. The analysis illustrateshow the possibilities of earning per-diems negatively influencesprojects and programs design,management decisions, and howemployees spend their time. Allthese have a powerful distortingimpact on development efforts.We propose a conceptualframework which demonstrates thelimits of per-diems as a motivationalfactor for travel missions and drawsimplications for economic theoryand policy. The framework showshow intrinsic motivation is partiallydestroyed when large per-diems arepaid. As the amount of per-diemincreases, the incentive ofintrinsically motivated individualsdecreases while the incentive ofextrinsically motivated onesincreases; explaining for examplewhy paying high per-diem rates fora meeting will increase theprobability of having inappropriatepeople attending. Where publicspirit prevails (intrinsic motivation),using large per-diems incentives toincrease motivation to attendmeeting/workshop comes at ahigher price than suggested bystandard economic theory. That isespecially the case as suchincentives tend to crowd out themost suitable participants. Thepaper concludes by warning againstgeneralized use of per-diems asmotivational factor, and exploresalternatives for a more efficient per-diemssystem.

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Paper provided by African Development Bank in its series Working Paper Series with number 2070.

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Date of creation: 27 Feb 2014
Handle: RePEc:adb:adbwps:2070
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  1. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-755, September.
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