IDEAS home Printed from https://ideas.repec.org/p/bri/cmpowp/04-103.html
   My bibliography  Save this paper

Incentives in the Public Sector: Evidence from a Government Agency

Author

Listed:
  • Simon Burgess
  • Carol Propper
  • Marisa Ratto
  • Emma Tominey

    ()

Abstract

This paper addresses a lack of evidence on the impact of performance pay in the public sector by evaluating a pilot scheme of incentives in a major government agency. The incentive scheme was based on teams and covered five different targets, measured with varying degrees of precision. We use data from the agency's performance management system and personnel records, plus matched labour market data. We focus on three main issues: whether performance pay matters for public service workers, what the team basis of the scheme implies, and the impact of the differential measurement precision. We show that the use of performance pay did have a significant effect on the main quality measure (job placements), but that there was significant heterogeneity of response. This heterogeneity was patterned as one would expect from a free rider versus per monitoring perspective. We found that the incentive had a substantial positive effect in small teams, and a negative response in large teams. We found little impact of the scheme on quality measures, and we interpret this as due to the differential measurement technology. We show that the scheme in small teams had non-trivial effects on output, and our estimates suggest that the use of incentive pay is much more cost effective than a general pay rise.

Suggested Citation

  • Simon Burgess & Carol Propper & Marisa Ratto & Emma Tominey, 2004. "Incentives in the Public Sector: Evidence from a Government Agency," The Centre for Market and Public Organisation 04/103, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:cmpowp:04/103
    as

    Download full text from publisher

    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp103.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hugh Gravelle & Matt Sutton & Ada Ma, 2010. "Doctor Behaviour under a Pay for Performance Contract: Treating, Cheating and Case Finding?," Economic Journal, Royal Economic Society, vol. 120(542), pages 129-156, February.
    2. Muralidharan, Karthik & Sundararaman, Venkatesh, 2011. "Teacher opinions on performance pay: Evidence from India," Economics of Education Review, Elsevier, vol. 30(3), pages 394-403, June.
    3. Pascal Courty & Gerald Marschke, 2004. "An Empirical Investigation of Gaming Responses to Explicit Performance Incentives," Journal of Labor Economics, University of Chicago Press, vol. 22(1), pages 23-56, January.
    4. Paarsch, Harry J & Shearer, Bruce, 2000. "Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 59-92, February.
    5. Courty, Pascal & Marschke, Gerald, 1997. "Measuring Government Performance: Lessons from a Federal Job-Training Program," American Economic Review, American Economic Association, vol. 87(2), pages 383-388, May.
    6. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
    7. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2009. "Social Connections and Incentives in the Workplace: Evidence From Personnel Data," Econometrica, Econometric Society, vol. 77(4), pages 1047-1094, July.
    8. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 917-962.
    9. Victor Lavy, 2009. "Performance Pay and Teachers' Effort, Productivity, and Grading Ethics," American Economic Review, American Economic Association, vol. 99(5), pages 1979-2011, December.
    10. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
    11. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
    12. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, Elsevier.
    13. Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2015. "Matching Firms, Managers, and Incentives," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 623-681.
    14. Debashish Bhattacherjee, 2005. "The Effects of Group Incentives in an Indian Firm: Evidence from Payroll Data," LABOUR, CEIS, vol. 19(1), pages 147-173, March.
    15. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
    16. repec:rus:hseeco:124059 is not listed on IDEAS
    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. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    19. Stephen Nickell & Glenda Quintini, 2002. "The Consequences of The Decline in Public Sector Pay in Britain: A Little Bit of Evidence," Economic Journal, Royal Economic Society, vol. 112(477), pages 107-118, February.
    20. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2007. "Incentives for Managers and Inequality among Workers: Evidence from a Firm-Level Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 729-773.
    21. Avinash Dixit, 2002. "# Incentives and Organizations in the Public Sector: An Interpretative Review," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 696-727.
    22. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-817, August.
    23. Simon Burgess & Carol Propper & Marisa Ratto & StephanievonHinke KesslerScholder & Emma Tominey, 2010. "Smarter Task Assignment or Greater Effort: The Impact of Incentives on Team Performance," Economic Journal, Royal Economic Society, vol. 120(547), pages 968-989, September.
    24. Carol Propper & John Van Reenen, 2010. "Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labor Markets on Hospital Performance," Journal of Political Economy, University of Chicago Press, vol. 118(2), pages 222-273, April.
    25. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    26. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-636, May.
    27. Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2004. "Physician Incentives in Health Maintenance Organizations," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 915-931, August.
    28. Knez, Marc & Simester, Duncan, 2001. "Firm-Wide Incentives and Mutual Monitoring at Continental Airlines," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 743-772, October.
    29. Karthik Muralidharan & Venkatesh Sundararaman, 2011. "Teacher Performance Pay: Experimental Evidence from India," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 39-77.
    30. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    31. Glenn MacDonald & Leslie M. Marx, 2001. "Adverse Specialization," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 864-899, August.
    32. repec:rus:hseeco:122154 is not listed on IDEAS
    33. Timothy Besley & Maitreesh Ghatak, 2003. "Incentives, Choice, and Accountability in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 235-249, Summer.
    34. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
    35. Baicker, Katherine & Jacobson, Mireille, 2007. "Finders keepers: Forfeiture laws, policing incentives, and local budgets," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2113-2136, December.
    36. Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 199-217.
    37. Kathleen J. Mullen & Richard G. Frank & Meredith B. Rosenthal, 2010. "Can you get what you pay for? Pay-for-performance and the quality of healthcare providers," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 64-91.
    38. Gaynor, Martin & Pauly, Mark V, 1990. "Compensation and Productive Efficiency of Partnerships: Evidence from Medical Group Practice," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 544-573, June.
    39. repec:dau:papers:123456789/4727 is not listed on IDEAS
    40. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
    41. Burt S Barnow, 2000. "Exploring the relationship between performance management and program impact: A case study of the job training partnership act," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(1), pages 118-141.
    42. 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.
    43. Kahn, Charles M & Silva, Emilson C D & Ziliak, James P, 2001. "Performance-Based Wages in Tax Collection: The Brazilian Tax Collection Reform and Its Effects," Economic Journal, Royal Economic Society, vol. 111(468), pages 188-205, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rachel Griffith & Andrew Neely, 2009. "Performance Pay and Managerial Experience in Multitask Teams: Evidence from within a Firm," Journal of Labor Economics, University of Chicago Press, vol. 27(1), pages 49-82, January.
    2. Milstein, Ricarda & Schreyoegg, Jonas, 2016. "Pay for performance in the inpatient sector: A review of 34 P4P programs in 14 OECD countries," Health Policy, Elsevier, vol. 120(10), pages 1125-1140.
    3. Helen Simpson, 2009. "Productivity In Public Services," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 250-276, April.
    4. Pierre Koning, 2006. "Measuring the effectiveness of Public Employment Service (PES) workers; an empirical analysis based on the performance outcomes of regional employment offices," CPB Discussion Paper 73, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Margaretha Buurman & Robert Dur, 2012. "Incentives and the Sorting of Altruistic Agents into Street-Level Bureaucracies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1318-1345, December.
    6. Ratto, Marisa & Tominey, Emma & Vergé, Thibaud, 2012. "Team Structure and the Effectiveness of Collective Performance Pay," IZA Discussion Papers 6747, Institute for the Study of Labor (IZA).
    7. Hasnain, Zahid & Manning, Nick & Pierskalla Henryk, 2012. "Performance-related pay in the public sector : a review of theory and evidence," Policy Research Working Paper Series 6043, The World Bank.
    8. Simon Burgess & Carol Propper & Marisa Ratto & StephanievonHinke KesslerScholder & Emma Tominey, 2010. "Smarter Task Assignment or Greater Effort: The Impact of Incentives on Team Performance," Economic Journal, Royal Economic Society, vol. 120(547), pages 968-989, September.
    9. Karagiannaki, Eleni, 2006. "Exploring the effects of integrated benefit systems and active labour market policies: evidence from Jobcentre Plus in the UK," LSE Research Online Documents on Economics 6240, London School of Economics and Political Science, LSE Library.
    10. Florian Ederer & Richard Holden & Margaret Meyer, 2014. "Gaming and Strategic Opacity in Incentive Provision," Cowles Foundation Discussion Papers 1935, Cowles Foundation for Research in Economics, Yale University.
    11. Pierre Koning, 2009. "The effectiveness of Public Employment Service workers in the Netherlands," Empirical Economics, Springer, vol. 37(2), pages 393-409, October.
    12. Carol Propper & Jack Britton, 2012. "Does Wage Regulation Harm Kids? Evidence from English Schools," The Centre for Market and Public Organisation 12/293, Department of Economics, University of Bristol, UK.
    13. Ederer, Florian & Holden, Richard & Meyer, Margaret A, 2013. "Gaming and Strategic Ambiguity in Incentive Provision," CEPR Discussion Papers 9319, C.E.P.R. Discussion Papers.
    14. Francisco Pedraja Chaparro & Javier Salinas Jiménez & María del Mar Salinas Jiménez, 2005. "Los indicadores de gestión en el Sector Público," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(2), pages 109-129, July.
    15. repec:dau:papers:123456789/12064 is not listed on IDEAS
    16. Pierre Koning & C.J. Heinrich, 2009. "Cream-skimming, parking and other intended and unintended effects of performance-based contracting in social welfare services," CPB Discussion Paper 134, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Roel Elk & Marc Steeg & Dinand Webbink, 2013. "Can Financial Incentives for Regional Education Authorities Reduce School Dropout?," De Economist, Springer, vol. 161(4), pages 367-398, December.
    18. Eleni Karagiannaki, 2006. "Exploring the effects of integrated benefit systems and active labour market policies: Evidence from Jobcentre Plus in the UK," CASE Papers case107, Centre for Analysis of Social Exclusion, LSE.
    19. repec:dau:papers:123456789/4727 is not listed on IDEAS

    More about this item

    Keywords

    incentives; public sector; teams; performance; personnel economics;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bri:cmpowp:04/103. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/cmbriuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.