INCENTIVES – Notes

NOTES ON INCENTIVES 

Market failures associated with public goods mean that education/health etc. is generally provided by the state. Yet public sector workers need to be incentivized to do good work. There are lingering questions about how to prevent absenteeism, inspire effort etc. The danger is that without correctly aligning incentives investment in infrastructure may be useless. Essentially it is a principal-agent problem; the effort of government workers is only imperfectly observed by proxy. Incentives therefore need to be based upon what the agent cares about in order to align with the principal (i.e. getting money, or avoiding censure).

                                                                                                            

Missing in Action: Teacher and Health Worker Absence in Developing Countries N. Chaudhury, J. Hammer, M. Kremer, K. Muralidharan & F.H. Rogers (Journal of Economic Perspectives 2006)

 

In a Nutshell

This paper formulates the problem nicely. In a cross country survey they find 19% of teachers and 35% of health workers are absent, and these rates tend to be higher in poorer areas. Higher ranking workers are more likely to be absent. Absence is not strongly affected by wages, but is affected by physical infrastructure which indicates that they are unlikely to be fired for absence, but their decisions as to attend are affected by the physical conditions under which they work.  Additionally, the survey reported that absence rates are not driven by the same individuals always being absent indicating that this is not a case of bas apples, but a system wide problem.

There are certain structural issues with service provision in developing countries. Firstly the system is often highly centralized which does not allow for much local monitoring. Salaries are determined by seniority which leaves little scope for performance based pay. Wages are not typically responsive to local labour market conditions, and are compressed relative to the private sector. Disciplinary actions for absence are often missing. Additionally a variety of informal service providers have arisen and they are often operated by the same government officials i.e. teachers offering tutoring, and health workers having private practice.

Correlation analysis across countries gives some indication of what is driving absence. In particular, status and poor infrastructure seem to be correlated with higher absence. The literacy rate of parents is associated with lower absence (perhaps through better monitoring, demand etc.). Having been inspected recently leads to lower absence.  Higher salaries decrease absence.

This is suggestive of the following policy priorities: increase local control, improve civil service sector, upgrade facilities, performance related pay. Not all of these are politically viable as the civil service tends to be a well-organized interest group. Additionally, as the poor and those receiving services are a disparate group they may suffer collective action problems in achieving better provision.

                                                                                                              

 

Addressing Absence A. Banerjee & E. Duflo

In a Nutshell

This paper looks at evidence from randomized control trials that seek to provide incentives to service providers with a variety of mechanisms:

  1. External Control: external control is when someone who has no stake in the performance of the service being delivered has the job of monitoring performance and basing reward/punishment incentives on the monitored performance. This could be a direct measure (such as recording presence/absence) or a more indirect measure such as test scores. In Dulfo & Hanna treatment schools were given cameras and teachers had to take photos at beginning end of the day on which the date was imprinted. They were rewarded for being present more than 21 days in a month, and penalized if not. This resulted in increased teacher attendance – absence dropped from 36% to 18% in the treatment schools. This did not necessarily indicate that the teachers were actually teaching. The benefit of this programme is that monitoring was impersonal; there was no scope for head teachers etc. to cheat the system. In the long run however, in a non-experimental setting, even with impersonal monitoring such as this, head teachers have to be willing to apply the reward/punishment structure, which is not a given.
  2. Rewards for performance rather than presence: Prizes were awarded for good exam results. The treatment group saw an increase in results, but no effect on absenteeism. Rather teachers held more preparation sessions. This indicates that such programmes will not be effective to increase attendance, although they may be useful in conjunction with other measures as there was an effect on the outcome of interest.
  3. Beneficiary control over Service Providers: give greater control to the beneficiaries. This is based on the view that recipients should be at the centre of service provision. There needs to be a demand for the service, and a mechanism by which beneficiaries can really affect performance – this is rarely the case as they do not generally have the power to hire/fire nor set salaries. Experiments in this area have yielded disappointing results. An experiment that asked a local to monitor presence of a health worker did not improve attendance, and a school committees experiment had similarly lackluster results. It is suggested that in many settings beneficiaries are not actually upset about the state of service provision – they have low expectations and as a result have little desire to invest time and energy into making better services. [See paper below for rebuttal]. This indicates that increasing demand for quality service may be a key way to get better outcomes.
  4. Demand side interventions: An incentives to learn initiative in Africa whereby the best performing students were given a scholarship for the following two years increased presence of both teachers and pupils in the treatment group. Why there was an effect on teacher is not clear, it may have been that they were inspired by the increased attention of the students, they had higher status when one of their students got the scholarship, parents may have started to be more serious about education when there was a financial incentive to do so etc. Interestingly the effect was present also for boys who were not eligible to win the scholarships.

All of this suggests that some combination of programmes may be effective. Raising demand can be a good way to increase outcomes, and also to generate an environment in which local monitoring will be effective – a virtuous circle. Also, incentivizing teachers’ presence and performance might be a good way to increase attendance, and effort exerted in delivering the service.

                                                                                                                  

Power to the People: Evidence from a Randomized Control Field Experiment on Community-Based Monitoring in Uganda M. Bjorkman and J. Svensson

 

In a Nutshell

Under the right conditions community based monitoring can be effective. Community based monitoring groups were set up to monitor local health providers. NGOs assisted in forming the groups and facilitating a discussion about what the people wanted from their health service, and drawing up a plan to improve them. This was then discussed with the health provider and a sort of contractual plan was drawn up. Under these circumstances they find a significant relationship between the degree of community monitoring and health utilization and health outcomes. The reason they theorize they found results where others have failed (see above) is that there is a lack of relevant information that prevents benefits from general community monitoring. Thus, as the community group was given access to a large amount of information, including local health data outcomes, and information about what might be expected from health providers, they were better able to come to an agreement on what services should look like, and hence more able to effectively monitor. In sum, a lack of information and failure to agree on expectations of what it is reasonable to demand from a provider was holding back individual and group based enforcement.

Treatment times fell, child mortality fell nearly 50%, and people were more likely to use the health facilities.

This paper effectively increases demand for better service provision, and also provides a mechanism for a community to achieve that level of service.

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