Incentivizing Effort Allocation Through Resource Allocation: Evidence from Scientists’ Response to Changes in Funding Policy

Prior research in management and economics has predominantly focused on how managers or policymakers can shape workers’ allocation of effort using output-based or effort-based incentives. In many settings, however, managers may seek to influence workers’ effort choices through resource allocation—that is, changing the cost of securing resources for different projects or activities. In this paper, we develop a formal model to investigate how a worker changes the allocation of a fixed amount of effort across different projects in response to changes in the cost of securing resources for each project. Our model shows how cutting resources available to one project, under certain circumstances, can inadvertently reduce the share of effort allocated to other projects and vice versa. We use the insights from the model to explore the effectiveness of funding strategies designed to influence the research direction of academic scientists. We specifically examine how U.S. scientists working in stem cell research responded to a 2001 policy change that restricted access to federal funding for research in the human embryonic stem cell (hESC) area. In line with our model’s predictions, we find that cutting resources for hESC research inadvertently reduced U.S. scientists’ output in non-hESC areas of stem cell research—an effect that is strongest among the highest-ability scientists. Our findings highlight the complexities of incentivizing effort allocation using resource-based incentives. In particular, we show how altering resource-based incentives in one area can have unforeseen spillover effects on effort allocation in other areas.