IDEAS home Printed from https://ideas.repec.org/p/spo/wpmain/infohdl2441-58ao15vh3t9tvakcshade02eov.html
   My bibliography  Save this paper

Financial Incentives are Counterproductive in Non-Profit Sectors: Evidence from a Health Experiment

Author

Listed:
  • Elise Huillery

    (Département d'économie)

  • Juliette Seban

    (Centre d'économie de la Sorbonne)

Abstract

Financial incentives for service providers are becoming a common strategy to improve service delivery. However, this strategy will only work if demand for the service responds as expected. Using a eld experiment in the Democratic Republic of Congo, we show that introducing a performance-based financing mechanism in the health sector has counterproductive effects because demand is non-standard: despite reduced prices and eased access, demand for health decreased, child health deteriorated, workers' revenue dropped. Ironically, expected perverse effects of incentives on worker behavior were not realized: incentives led to more effort from health workers on rewarded activities without deterring effort on non-rewarded activities, nor inducing significant score manipulation or free-riding. We also find a decline in worker motivation following the removal of the incentives, below what it would have been in the absence of exposure to the incentives. Management tools used in for-pro t sectors are thus inappropriate in non-pro t sectors such as health where user and worker rationalities are specific.

Suggested Citation

  • Elise Huillery & Juliette Seban, 2015. "Financial Incentives are Counterproductive in Non-Profit Sectors: Evidence from a Health Experiment," Sciences Po publications info:hdl:2441/58ao15vh3t9, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/58ao15vh3t9tvakcshade02eov
    as

    Download full text from publisher

    File URL: https://spire.sciencespo.fr/hdl:/2441/58ao15vh3t9tvakcshade02eov/resources/wp-financial-incentives-march2015.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Grant Miller & Kimberly Singer Babiarz, 2013. "Pay-for-Performance Incentives in Low- and Middle-Income Country Health Programs," NBER Working Papers 18932, National Bureau of Economic Research, Inc.
    3. Forsberg, Ewa & Axelsson, Runo & Arnetz, Bengt, 2001. "Financial incentives in health care. The impact of performance-based reimbursement," Health Policy, Elsevier, vol. 58(3), pages 243-262, December.
    4. Imran Rasul & Daniel Rogger, 2018. "Management of Bureaucrats and Public Service Delivery: Evidence from the Nigerian Civil Service," Economic Journal, Royal Economic Society, vol. 128(608), pages 413-446, February.
    5. Uri Gneezy & Stephan Meier & Pedro Rey-Biel, 2011. "When and Why Incentives (Don't) Work to Modify Behavior," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 191-210, Fall.
    6. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2013. "Team Incentives: Evidence From A Firm Level Experiment," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1079-1114, October.
    7. 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.
    8. Emir Kamenica, 2012. "Behavioral Economics and Psychology of Incentives," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 427-452, July.
    9. Pascaline Dupas, 2014. "Short‐Run Subsidies and Long‐Run Adoption of New Health Products: Evidence From a Field Experiment," Econometrica, Econometric Society, vol. 82(1), pages 197-228, January.
    10. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
    11. 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.
    12. 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, March.
    13. Gertler, Paul & Vermeerch, Christel, 2013. "Using Performance Incentives to Improve Medical Care Productivity and Health Outcomes," Institute for Research on Labor and Employment, Working Paper Series qt9qn9q7ph, Institute of Industrial Relations, UC Berkeley.
    14. Ashraf, Nava & Bandiera, Oriana & Jack, B. Kelsey, 2014. "No margin, no mission? A field experiment on incentives for public service delivery," Journal of Public Economics, Elsevier, vol. 120(C), pages 1-17.
    15. Mark Stabile & Sarah Thomson, 2014. "The Changing Role of Government in Financing Health Care: An International Perspective," Working Papers hal-03460310, HAL.
    16. Mark Stabile & Sarah Thomson, 2014. "The Changing Role of Government in Financing Health Care: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 480-518, June.
    17. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
    18. Benjamin A. Olken & Junko Onishi & Susan Wong, 2014. "Should Aid Reward Performance? Evidence from a Field Experiment on Health and Education in Indonesia," American Economic Journal: Applied Economics, American Economic Association, vol. 6(4), pages 1-34, October.
    19. Nava Ashraf & Oriana Bandiera & Scott Lee, 2014. "Do-gooders and go-getters: career incentives, selection, and performance in public service delivery," STICERD - Economic Organisation and Public Policy Discussion Papers Series 54, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    20. Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2013. "Team incentives: evidence from a firm level," LSE Research Online Documents on Economics 53141, London School of Economics and Political Science, LSE Library.
    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. Gil Shapira & Ina Kalisa & Jeanine Condo & James Humuza & Cathy Mugeni & Denis Nkunda & Jeanette Walldorf, 2018. "Going beyond incentivizing formal health providers: Evidence from the Rwanda Community Performance‐Based Financing program," Health Economics, John Wiley & Sons, Ltd., vol. 27(12), pages 2087-2106, December.
    2. Chicoine, Luke & Guzman, Juan Carlos, 2017. "Increasing Rural Health Clinic Utilization with SMS Updates: Evidence from a Randomized Evaluation in Uganda," World Development, Elsevier, vol. 99(C), pages 419-430.
    3. Maria Paola Bertone & Jean-Benoît Falisse & Giuliano Russo & Sophie Witter, 2018. "Context matters (but how and why?) A hypothesis-led literature review of performance based financing in fragile and conflict-affected health systems," PLOS ONE, Public Library of Science, vol. 13(4), pages 1-27, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elise Huillery & Juliette Seban, 2015. "Financial Incentives are Counterproductive in Non-Profit Sectors: Evidence from a Health Experiment," SciencePo Working papers hal-01164460, HAL.
    2. Elise Huillery & Juliette Seban, 2014. "Performance-Based Financing, Motivation and Final Output in the Health Sector: Experimental Evidence from the Democratic Republic of Congo," Sciences Po publications 2014-12, Sciences Po.
    3. Omar Al‐Ubaydli & Steffen Andersen & Uri Gneezy & John A. List, 2015. "Carrots That Look Like Sticks: Toward an Understanding of Multitasking Incentive Schemes," Southern Economic Journal, John Wiley & Sons, vol. 81(3), pages 538-561, January.
    4. Jason J Sandvik & Richard E Saouma & Nathan T Seegert & Christopher T Stanton, 2020. "Workplace Knowledge Flows," The Quarterly Journal of Economics, Oxford University Press, vol. 135(3), pages 1635-1680.
    5. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2011. "Field Experiments with Firms," Journal of Economic Perspectives, American Economic Association, vol. 25(3), pages 63-82, Summer.
    6. Rajshri Jayaraman & Debraj Ray & Francis de Véricourt, 2016. "Anatomy of a Contract Change," American Economic Review, American Economic Association, vol. 106(2), pages 316-358, February.
    7. Renfu Luo & Grant Miller & Scott Rozelle & Sean Sylvia & Marcos Vera-Hernández, 2015. "Can Bureaucrats Really Be Paid Like CEOs? School Administrator Incentives for Anemia Reduction in Rural China," NBER Working Papers 21302, National Bureau of Economic Research, Inc.
    8. Elise Huillery & Juliette Seban, 2014. "Performance-Based Financing, Motivation and Final Output in the Health Sector: Experimental Evidence from the Democratic Republic of Congo," SciencePo Working papers hal-01071880, HAL.
    9. Manuela Angelucci & Silvia Prina & Heather Royer & Anya Samek, 2015. "When Incentives Backfire: Spillover Effects in Food Choice," NBER Working Papers 21481, National Bureau of Economic Research, Inc.
    10. Cadena, Brian C. & Smith, Austin C., 2022. "Performance pay, productivity, and strategic opt-out: Evidence from a community health center," Journal of Public Economics, Elsevier, vol. 206(C).
    11. Greer K. Gosnell & John A. List & Robert Metcalfe, 2016. "A New Approach to an Age-Old Problem: Solving Externalities by Incenting Workers Directly," NBER Working Papers 22316, National Bureau of Economic Research, Inc.
    12. Grant Miller & Kimberly Singer Babiarz, 2013. "Pay-for-Performance Incentives in Low- and Middle-Income Country Health Programs," NBER Working Papers 18932, National Bureau of Economic Research, Inc.
    13. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 19, pages 1697-1767, Elsevier.
    14. Ashraf, Nava & Bandiera, Oriana & Jack, B. Kelsey, 2014. "No margin, no mission? A field experiment on incentives for public service delivery," Journal of Public Economics, Elsevier, vol. 120(C), pages 1-17.
    15. Friebel, Guido & Heinz, Matthias & Khashabi, Pooyan & Kretschmer, Tobias & Zubanov, Nick, 2017. "Heterogeneous Effects of Performance Pay with Market Competition: Evidence from a Randomized Field Experiment," CEPR Discussion Papers 12474, C.E.P.R. Discussion Papers.
    16. Timothy Besley & Maitreesh Ghatak, 2018. "Prosocial Motivation and Incentives," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 411-438, August.
    17. Rajshri Jayaraman & Debraj Ray & Francis de V´ericourt, 2014. "Productivity Response to a Contract Change," Working Papers id:5685, eSocialSciences.
    18. Shaw, Kathryn, 2009. "Insider econometrics: A roadmap with stops along the way," Labour Economics, Elsevier, vol. 16(6), pages 607-617, December.
    19. Goto, Jun & Sawada, Yasuyuki & Aida, Takeshi & Aoyagi, Keitaro, 2015. "Incentives and Social Preferences: Experimental Evidence from a Seemingly Inefficienct Traditional Labor Contract," 2015 Conference, August 9-14, 2015, Milan, Italy 211687, International Association of Agricultural Economists.
    20. Florian Englmaier & Andreas Roider & Uwe Sunde, 2017. "The Role of Communication of Performance Schemes: Evidence from a Field Experiment," Management Science, INFORMS, vol. 63(12), pages 4061-4080, December.

    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

    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:spo:wpmain:info:hdl:2441/58ao15vh3t9tvakcshade02eov. 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: https://edirc.repec.org/data/ecspofr.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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Spire @ Sciences Po Library (email available below). General contact details of provider: https://edirc.repec.org/data/ecspofr.html .

    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.