Effort as Investment: Analyzing the Response to Incentives

48 Pages Posted: 19 Jun 2007

See all articles by John N. Friedman

John N. Friedman

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Steven Kelman

Harvard University - Harvard Kennedy School (HKS)

Date Written: May 2007

Abstract

We analyze a model in which incentives in one period on one task can affect output more broadly through learning. If agents can invest in human or organizational capital, then output will increase both before and after short-term incentives. We develop a model of these effects, and then we evaluate its predictions using data from hospitals in Britain during a series of limited-time performance incentives offered by the government. We find empirically that these policies increase performance not only during the incentivized periods but also before and after, matching the predictions of our model. We also examine performance along non-incentivized dimensions of quality of care and find little evidence of classical effort substitution.

Keywords: Human Resources, Labor and Education, Public Management, Welfare / Health Care/ Social Policy

Suggested Citation

Friedman, John Norton and Kelman, Steven, Effort as Investment: Analyzing the Response to Incentives (May 2007). KSG Working Paper No. RWP07-024. Available at SSRN: https://ssrn.com/abstract=976545 or http://dx.doi.org/10.2139/ssrn.976545

John Norton Friedman

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Steven Kelman (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-496-6302 (Phone)
617-496-5747 (Fax)

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