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The Role of Incentives in the Public Sector: Issues and Evidence

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  • Simon Burgess
  • Marisa Ratto

Abstract

Using incentive pay to improve public sector efficiency is an important component of the UK Government's public service modernisation agenda. In this paper, we review the important issues in performance pay in the public sector, and summarise the evidence on its effects. We consider how optimal incentives for public sector workers may differ from those in the private sector, and if so, what types of incentives are more appropriate for the public sector. We investigate the reasons for the infrequent use of explicit incentives in the public sector. We summarise evidence of particular relevance to the public sector, on issues such as the impact on output of incentive pay schemes, gaming and dysfunctional behaviour, multiple principals, intrinsic motivation and team-work. Finally, we comment on the design of new policies being introduced in the UK public sector in the light of the theoretical arguments and the evidence.

Suggested Citation

  • Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:03/071
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    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp71.pdf
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    More about this item

    Keywords

    incentives; public sector;

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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