The Role of Incentives in the Public Sector: Issues and Evidence
Oxford review of economic policy
The Leverhulme Centre for Market and Public Organisation, a Research Centre based at the University of Bristol, was established in 1998. The principal aim of the CMPO is to develop understanding of the design of activities within the public sector, on the boundary of the state and within recently privatised entities with the objective of developing research in, and assessing and informing policy toward, these activities. Abstract Using incentive pay to improve public sector efficiency is an
... fficiency 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.