The Economics of Death Ceilings

37 Pages Posted: 27 Apr 2015

See all articles by Raymond J. Fisman

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

Yongxiang Wang

University of Southern California - Marshall School of Business

Date Written: March 2015

Abstract

Incentive design involves a tradeoff between motivating agents and distorting their efforts; for many tasks the distortions are such that flat rewards may be optimal. Yet organizations of all types -- from school boards to the FBI -- increasingly utilize rewards based on observable performance metrics. We describe the effects of one such attempt, implemented in 2004, to motivate Chinese bureaucrats to reduce accidental deaths. Each province was given a set of 'death ceilings' that, if exceeded, would impede government officials' promotions. For each category of accidental deaths, we observe a sharp, significant discontinuity in reported deaths at the ceiling. Provinces with safety incentives for municipal officials experienced more rapid declines in accidental rates, suggesting a complementarity between incentives at different levels of government in achieving targets. There is no effect on production volume or costs when provinces are close to their workplace death ceilings, suggesting real safety effort (through, say, additional spending on workplace safety or reduced production rates) is unlikely to account for the discontinuities we observe. Finally, we examine whether the dynamic incentives created by death ceilings affect death reporting. While realized accidental deaths predict next year's ceiling, we observe no evidence that provinces manipulate deaths upward to avoid a ratchet effect in the setting of death ceilings.

Keywords: Bureaucracy; Incentive design; Workplace Safety; Regression discontinuity

JEL Classification: D73; H75

Suggested Citation

Fisman, Raymond and Wang, Yongxiang, The Economics of Death Ceilings (March 2015). Available at SSRN: https://ssrn.com/abstract=2599240 or http://dx.doi.org/10.2139/ssrn.2599240

Raymond Fisman

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Yongxiang Wang (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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