Incentives in the Public Sector: Evidence from a Government Agency

41 Pages Posted: 28 Sep 2012

See all articles by Simon M. Burgess

Simon M. Burgess

University of Bristol - Department of Economics; University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Carol Propper

Imperial College London Business School; Centre for Economic Policy Research (CEPR); University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

Marisa Ratto

Université Paris-Dauphine, PSL Research University

Emma Tominey

University of York - Department of Economics and Related Studies; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: July 2012

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 quantity and quality 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 worker productivity, what the team basis of the scheme implies, and the impact of the differential measurement precision. We show that the use of performance pay had no impact at the mean, but that there was significant heterogeneity of response. This heterogeneity was patterned as one would expect from a free rider versus peer monitoring perspective. We found that the incentive scheme 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, which we interpret 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.

Keywords: Incentives, Performance, Personnel economics, Public Sector, Teams

JEL Classification: D23, J33, J45

Suggested Citation

Burgess, Simon and Propper, Carol and Ratto, Marisa and Tominey, Emma, Incentives in the Public Sector: Evidence from a Government Agency (July 2012). CEPR Discussion Paper No. DP9071. Available at SSRN: https://ssrn.com/abstract=2153521

Simon Burgess (Contact Author)

University of Bristol - Department of Economics ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom
+44 117 928 8436 (Phone)
+44 117 928 8577 (Fax)

HOME PAGE: http://www.bris.ac.uk/Depts/Economics/department/profiles/burgess.htm

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO)

12 Priory Road
Bristol BS8 1TN
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Carol Propper

Imperial College London Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) ( email )

12 Priory Road
Bristol BS8 1TN
United Kingdom

HOME PAGE: http://www.bris.ac.uk/Depts/Economics/department/profiles/propper.htm

Marisa Ratto

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

Emma Tominey

University of York - Department of Economics and Related Studies ( email )

Heslington
York, YO1 5DD
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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