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The allocation of incentives in multi-layered organizations

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A classic problem faced by organizations is to decide how to distribute incentives among their different layers. By means of a field experiment with a large public-health organization in Sierra Leone, we show that financial incentives maximize output when they are equally shared between frontline health workers and their supervisor. The impact of this intervention on completed health visits is 61% larger than the impact of incentive schemes that target exclusively the worker or the supervisor. Also, the shared incentives uniquely improve overall health-service provision and health outcomes. We use these experimental results to structurally estimate a model of service provision and find that shared incentives are effective because worker and supervisor effort are strong strategic complements, and because side payments across layers are limited. Through the use of counterfactual model experiments, we highlight the importance of effort complementarities across the different layers of an organization for optimal policy design.

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  • Erika Deserranno & Stefano Caria & Philipp Kastrau & Gianmarco León-Ciliotta, 2022. "The allocation of incentives in multi-layered organizations," Economics Working Papers 1838, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1838
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    Keywords

    Incentives; multi-layered organizations; effort complementarities; side payments; output;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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