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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

    () (Leiden University)

  • 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.

Suggested Citation

  • Koning, Pierre & Heinrich, Carolyn J., 2010. "Cream-Skimming, Parking and Other Intended and Unintended Effects of Performance-Based Contracting in Social Welfare Services," IZA Discussion Papers 4801, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4801
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    1. Koning, Pierre & van de Meerendonk, Arthur, 2014. "The impact of scoring weights on price and quality outcomes: An application to the procurement of Welfare-to-Work contracts," European Economic Review, Elsevier, vol. 71(C), pages 1-14.

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    More about this item

    Keywords

    performance contracting; social welfare;

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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