Cream-Skimming, Parking and Other Intended and Unintended Effects of Performance-Based Contracting in Social Welfare Services

52 Pages Posted: 15 Mar 2010

See all articles by Pierre Koning

Pierre Koning

CPB Netherlands Bureau of Economic Policy Analysis

Carolyn Heinrich

Vanderbilt University; 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.

Keywords: social welfare, performance contracting

JEL Classification: I38, H11, H53

Suggested Citation

Koning, Pierre and Heinrich, Carolyn, Cream-Skimming, Parking and Other Intended and Unintended Effects of Performance-Based Contracting in Social Welfare Services. IZA Discussion Paper No. 4801, Available at SSRN: https://ssrn.com/abstract=1570399

Pierre Koning (Contact Author)

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands
+31 703383380 (Phone)
+31 703383350 (Fax)

Carolyn Heinrich

Vanderbilt University ( email )

2301 Vanderbilt Place
Nashville, TN 37240
United States
615-322-1169 (Phone)

HOME PAGE: http://peabody.vanderbilt.edu/bio/carolyn-heinrich

University of Texas at Austin ( email )

2315 Red River St.
Austin, TX 78713
United States
512-471-3200 (Phone)

HOME PAGE: http://www.utexas.edu/lbj/directory/faculty/carolyn-heinrich

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