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Financial Incentives are Counterproductive in Non-Profit Sectors: Evidence from a Health Experiment

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Listed:
  • Elise Huillery

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Juliette Seban

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

Financial incentives for service providers are becoming a common strategy to improve service delivery. However, this strategy will only work if demand for the service responds as expected. Using a eld experiment in the Democratic Republic of Congo, we show that introducing a performance-based financing mechanism in the health sector has counterproductive effects because demand is non-standard: despite reduced prices and eased access, demand for health decreased, child health deteriorated, workers' revenue dropped. Ironically, expected perverse effects of incentives on worker behavior were not realized: incentives led to more effort from health workers on rewarded activities without deterring effort on non-rewarded activities, nor inducing significant score manipulation or free-riding. We also find a decline in worker motivation following the removal of the incentives, below what it would have been in the absence of exposure to the incentives. Management tools used in for-pro t sectors are thus inappropriate in non-pro t sectors such as health where user and worker rationalities are specific.

Suggested Citation

  • Elise Huillery & Juliette Seban, 2015. "Financial Incentives are Counterproductive in Non-Profit Sectors: Evidence from a Health Experiment," SciencePo Working papers Main hal-01164460, HAL.
    • Handle: RePEc:hal:spmain:hal-01164460
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01164460
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    1. Gil Shapira & Ina Kalisa & Jeanine Condo & James Humuza & Cathy Mugeni & Denis Nkunda & Jeanette Walldorf, 2018. "Going beyond incentivizing formal health providers: Evidence from the Rwanda Community Performance‐Based Financing program," Health Economics, John Wiley & Sons, Ltd., vol. 27(12), pages 2087-2106, December.
    2. Chicoine, Luke & Guzman, Juan Carlos, 2017. "Increasing Rural Health Clinic Utilization with SMS Updates: Evidence from a Randomized Evaluation in Uganda," World Development, Elsevier, vol. 99(C), pages 419-430.
    3. Maria Paola Bertone & Jean-Benoît Falisse & Giuliano Russo & Sophie Witter, 2018. "Context matters (but how and why?) A hypothesis-led literature review of performance based financing in fragile and conflict-affected health systems," PLOS ONE, Public Library of Science, vol. 13(4), pages 1-27, April.

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    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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