The audit society and its enemies
Niklas Bengtsson, Per Engström 28 October 2014
Critics of the ‘audit society’ and the so-called ‘new public management’ doctrines have gained momentum in recent years. At the centre of the critique is the so-called motivation crowding-out hypothesis. This column presents evidence from a field experiment involving Swedish non-profits. Far from crowding out intrinsic motivation, the threat of an audit improved all aspects of efficiency.
In the second season of The Wire, thirteen dead women are discovered in a cargo container in Baltimore. Being a case with a low probability of being solved, the different managers of the police force immediately start arguing over which department is responsible for investigating the issue. The incentives are clear – whoever gets the case will have poor statistics to show when the management of the department is audited at the end of the year. The consequence is bribes, corruption, and a dysfunctional police force.
Frontiers of economic research
agency, motivation, motivation crowding-out, intrinsic motivation, incentives, performance-related pay, trust, audits, Sweden, non-profits, charity
Determinants of prosocial behaviour: Lessons from an experiment with referees at the Journal of Public Economics
Raj Chetty, Emmanuel Saez, László Sándor 11 August 2014
Peer review is at the heart of academic economics, but there are few professional rewards for submitting detailed referee reports on time. This column reports the results from an experimental study of referee motivation. Shorter deadlines ‘nudged’ referees to submit reports earlier. Cash incentives also reduced turnaround times, suggesting that any ‘crowding out’ of intrinsic motivation is small. Social incentives – publication of turnaround times – were more effective for tenured referees than shorter deadlines or cash incentives.
Many organisations rely on prosocial behaviours – choices that benefit others but have a personal cost – to achieve their objectives. For instance, foundations rely on charitable contributions for funding, governments partly rely on voluntary compliance for tax revenue, and employers rely on voluntary referrals for hiring. Because such prosocial behaviours have positive externalities by definition, increasing such behaviour can improve welfare. What are the most effective policies to encourage prosocial behaviour?
Frontiers of economic research
research, incentives, Behavioural economics, academia, journals, peer review, social pressure, intrinsic motivation
Can temporary in-work support help the long-term unemployed enter sustained work?
Richard Dorsett 21 November 2013
Individuals moving from long-term unemployment into work face a number of challenges. This column discusses the use of temporary in-work support during this transition. Recent experimental evidence has shown the potential for such support to have a positive long-term effect. It can increase not only employment entry but also employment retention, and so may provide a means of addressing the low pay, no pay cycle.
There is growing awareness among policymakers that, in order to break the so-called ‘low pay, no pay’ cycle, labour market programmes must do more than just encourage job entry. To help the unemployed achieve long-term self-sufficiency, they must also support them in work. For a long-time, the UK and the US have provided in-work payments to low-paid workers via Working Tax Credit and Earned Income Tax Credit, respectively. These are available on an ongoing basis, and are intended to sharpen work incentives by increasing the rewards to employment.
unemployment, incentives, low pay, tax credits, hysteresis
Imran Rasul, Daniel Rogger 19 November 2013
Around the world, civil service reform is viewed as necessary to deliver public services effectively and to foster development. However, evidence is thin on how the management of bureaucrats affects the provision of public services. This column presents new evidence from Nigeria linking completion rates of government projects to bureaucractic management practices. Greater autonomy is associated with higher completion rates, whereas performance monitoring and incentive schemes seem to backfire. The most effective private-sector management practices may not be suited to public sector bureaucracies.
Since its inception in the 1850s, the British Civil Service has become a cornerstone of the executive branch of the UK government, translating the policy programme of the government into practice. Its practices have evolved gradually over the decades, but it is now in the midst of a major upheaval – in 2012, the Minister for the Cabinet Office and the Head of the Civil Service jointly published the Civil Service Reform Plan. The plan recognised the increased expectations on government to deliver public services in the context of perhaps permanently diminished government resources.
Development Institutions and economics Politics and economics
Africa, Management, incentives, Nigeria, bureaucracy, civil service, monitoring
Should we promote ‘healthy choices’ or ‘healthy environments’?
Joan Costa-i-Font 12 April 2013
Are healthy lifestyles purely about people’s personal choices? Can we explain why specific people are fit, non-smokers and risk-averse? This column argues that policymaking can incentivise health behaviour but that monetary incentives are not the only approach. Academics and policymakers should aim to influence social norms and society’s role models when monetary incentives are not enough.
A growing share of healthcare expenditures is both directly and indirectly the consequence of unhealthy behaviour.
- Preventable conditions linked to lifestyle choices such as obesity, smoking and drink-related illnesses play an ever-increasing role in explaining healthcare use and expenditures.
- Obesity alone is estimated to account for 21% of US healthcare costs (Cowley and Meyerhoefer 2012).
This is so much the case that ‘prevention’ is now pinpointed as a key mechanism to decrease unnecessary, or avoidable, healthcare use.
obesity, incentives, social norms, Smoking
On the use of high-powered incentives in the public sector
Simon Burgess, Carol Propper, Marisa Ratto, Emma Tominey, Stephanie von Hinke Kessler Scholder 06 September 2012
Do cash incentives matter in the public sector? This column looks at the use of incentive schemes, such as performance-related pay, in the British Labour government between 1997 and 2010. It finds that cash incentives do matter, but that their design is critical.
With budgets under pressure, governments around the world are trying to get more from fewer public sector workers – the perennial productivity issue. A number have resorted to introducing ‘high-powered’ incentives into the public sector.
- In some cases this has been achieved by simply privatising service provision;
- In other cases government has introduced higher-powered incentives within the public sector.
Examples include pay for performance for teachers and doctors (Atkinson et al. 2009; Lavy 2009; Gravelle et al. 2010).
Productivity and Innovation
incentives, Public sector
No margin, no mission? Motivating agents in the social sector
Oriana Bandiera, B Kelsey Jack, Nava Ashraf 13 March 2012
What motivates agents in the social sector? Recent theoretical advances indicate that financial incentives might crowd out intrinsic motivation and reduce performance. This column describes a field experiment where hairdressers in Zambia were motivated in different ways to sell condoms. It finds that social recognition can be a more powerful performance motivator than financial gains.
Many organisations hire agents to perform pro-social tasks, namely tasks that entail benefits for others in society. This is mostly true for non-profit and other mission-driven organisations, but is becoming increasingly relevant for for-profit organisations that often engage in pro-social activities alongside their main line of business.
In addition, many mission-driven organisations in the developing world implement social programmes by engaging community members to perform pro-social tasks in addition to their main income-generating activities.
incentives, randomised experiment, pro-social behaviour
Why expect S&P, Moody’s, or Fitch to know it's junk when expert musicians can't tell a Stradivarius from a fiddle?
Victor Ginsburgh 16 January 2012
Economists have shown that wine tasters can’t tell Bordeaux from budget plonk, movie critics are prone to giving biased reviews, and Olympic judges are often judging what’s best for them to say rather than what’s in front of them. This column asks why we should expect credit-rating agencies, with their own unique set of ignorance and incentives, to be any different.
A paper by Fritz et al (2012) published last week in the Proceedings of the National Academy of Sciences shows that professional musicians are unable to distinguish between the tonal superiority of a violin built by Stradivari (which would cost up to $4 million) from that of a new American instrument (a couple of thousand).
Frontiers of economic research Global governance International finance
wine, incentives, financial regulation, music, credit-rating agencies, movies
Bankers’ bonuses and the financial crisis
Ian Tonks 08 January 2012
Ever since the fall of Lehman Brothers, it has been a popular view – and one increasingly held by officials – that banker bonuses are at least partly to blame. This column compares executive pay in banks with other companies and finds, contrary to the growing consensus, that the financial sector differs not so much in its reward for taking risks, but in its reward for expansion.
In the fallout from the financial crisis of 2007-8, a number of official policy documents have reported on its causes and have identified executive pay packets and bonuses in banks and financial institutions as being partly to blame.
Global crisis International finance
risk, incentives, banker bonuses