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Effort as Investment: Analyzing the Response to Incentives

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  • Friedman, John N.

    (Harvard U)

  • Kelman, Steven

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 e¤ects, 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 …nd empirically that these policies increase performance not only during the incentivized periods but also before and after, matching the preditctions of our model. We also examine performance along non-incentivized dimensions of quality of care and find little evidence of classical effort substitution.

Suggested Citation

  • Friedman, John N. & Kelman, Steven, 2007. "Effort as Investment: Analyzing the Response to Incentives," Working Paper Series rwp07-024, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp07-024
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    References listed on IDEAS

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    Cited by:

    1. Propper, Carol & Sutton, Matt & Whitnall, Carolyn & Windmeijer, Frank, 2010. "Incentives and targets in hospital care: Evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 318-335, April.
    2. Joshua Graff Zivin & Lisa B. Kahn & Matthew Neidell, 2021. "Incentivizing Learning-by-Doing: The Role of Compensation Schemes," Research in Labor Economics, in: Workplace Productivity and Management Practices, volume 49, pages 139-178, Emerald Group Publishing Limited.
    3. Shimaa Elkomy & Graham Cookson, 2020. "Performance Management Strategy: Waiting Time in the English National Health Services," Public Organization Review, Springer, vol. 20(1), pages 95-112, March.
    4. Gwyn Bevan & Richard Hamblin, 2009. "Hitting and missing targets by ambulance services for emergency calls: effects of different systems of performance measurement within the UK," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 172(1), pages 161-190, January.

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    • D20 - Microeconomics - - Production and Organizations - - - General

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