Why would we want to incentivize at the community rather than individual level? This was the question that puzzled me as I prepared a discussion of Olken, Onishi, and Wong (2013) for J-PAL’s Maternal and Child Health Conference. This paper tests the impact of block grants to communities to improve health and education. In some communities the size of the block grant was linked to performance against target outcomes like the percentage of children immunized or enrollment rates at school. The incentives were effective at improving health, though not education on average. However, in communities with poor outcomes at the start of the program, the incentives improved outcomes over and above the impact of the block grants.
Incentives at the community level face collective-action problems: any effort by a single individual would have little impact on its own, making it tempting to free ride. Individuals may also find it hard to capture all the benefits of the incentives, which might similarly diminish their impact on behavior.
However, programs that provide incentives to individual service providers linked to performance have a mixed record, particularly those run by governments. All too often governments fail to implement the incentive programs they set up: providing bonuses even to those who have poor attendance records (Chen and Kremer 2001), refusing to impose sanctions on providers with high absence (Dhaliwal and Hanna 2014), or “excusing” absences to ensure providers avoid sanctions (Banerjee, Duflo, and Glennerster 2008). At the start of the program, when providers think the incentives will be enforced, absenteeism falls (in Dhaliwal and Hanna, health outcomes improve measurably as well) but once it becomes clear the government is not imposing the incentives absenteeism goes back up.
This prompted me to come up with a quick categorization of programs designed to improve public-service quality which used incentives at the individual and community level and have been rigorously evaluated (see figure below). I may well have missed studies, so please let me know if there are any I should add.
Given the problem governments appear to have in implementing individual incentives, I thought it would be useful to distinguish between programs implemented by NGOs for NGO workers; those which incentivize government workers but where an NGO determines who gets the incentive and how much; and those schemes that are entirely governmental. I also distinguished between programs working in health versus education.
The somewhat surprising pattern that emerged showed that community incentive programs administered by governments were on the whole more effective than government-run incentive programs targeted at individual providers. Interestingly, the effective community-incentive programs are all in health (as noted above, the incentives in education in Indonesia did not improve education on average, although they did in areas with low initial outcomes). (Note that Muralidharan and Sundararaman 2009 find positive impacts of individual incentives in schools in India but the incentives are determined and given out by an NGO.)
What advantage might community-level incentives have over individual level incentives? I can think of several reasons:
i) Communities have the ability to shift resources into activities that might be more productive in generating better services. For example, in Olken et al. (2013), incentivized communities switch resources from education to health (education outcomes do not fall as a result and there is evidence the education expenditure is used more effectively). An individual often cannot make these budget reallocations.
ii) Governments may find it more acceptable to reward or punish communities for performance than individuals. There may be strong norms that people doing the same job are paid the same, a norm that may not be as strong at the community level.
iii) Communities may have more information or more subtle ways to incentivize service providers to perform well in ways that are compatible with local norms. In discussion at the conference there was some skepticism that this was the case, but Olken et al. do show evidence that at least in health, the community incentives are in part working through higher provider effort. This is also the case in Bloom et al. 2006 where district-wide contracts in Cambodia linked to performance lead to lower absenteeism and higher provider effort.
These observations are not meant to suggest that we should give up on incentives for providers at the individual level, but these findings should give governments pause before introducing them, and in particular encourage governments to think of ways to tie supervisor’s hands to ensure follow-through. But this way of looking at the literature did make me more optimistic about community-based incentives where more work would be useful, particularly in education. (Note that Muralidharan and Sundararaman look at incentives tied to a group of teacher performance, but this is not quite the same as community incentives as it’s not clear that teachers can reallocate resources). Finally, the challenges governments face in carrying through incentive schemes raises the importance of recruiting self-motivated staff in the first place (Ashraf, Bandiera, and Lee 2014a; also discussed at the J-PAL Maternal and Child Health Conference) and the role of nonfinancial incentives (Ashraf et al. 2014b).
Ben Olken’s 20-minute presentation of the Olken et al. findings can be viewed here, along with my discussion and subsequent general debate. Video of Nava Ashraf presenting Ashraf, Bandiera, and Lee (2014a) is available here.
The full citations for the papers listed in the table above are below:
Banerjee, Abhijit V., Esther Duflo, and Rachel Glennerster. 2008. "Putting a Band-Aid on a Corpse: Incentives for Nurses in the Indian Public Health Care System." Journal of the European Economic Association 6(2-3): 487-500. PDF
Bloom, Erik, Indu Bhushan, David Clingingsmith, Rathavuth Hung, Elizabeth King, Michael Kremer, Benjamin Loevinsohn, and J. Brad Schwartz. 2006. “Contracting for health: Evidence from Cambodia.” Mimeo. PDF
Basinga, Paulin, Paul Gertler, Agnes Binagwaho, Agnes L.B. Soucat, Jennifer Sturdy, and Christel Vermeersch. 2010. "Paying Primary Health Care Centers for Performance in Rwanda." World Bank Policy Research Working Paper Series. PDF
Dhaliwal, Iqbal and Rema Hanna. 2014. "Deal with the Devil: The Successes and Limitations of Bureaucratic Reform in India." MIT Working Paper. PDF
Duflo, Esther, Pascaline Dupas, and Michael Kremer. 2009. “Peer Effects, Teacher Incentives, and the Impact of Tracking: Evidence from a Randomized Evaluation in Kenya.” American Economic Review, 101(5): 1739-74. PDF
Glewwe, Paul, Nauman Ilias, and Michael Kremer. 2010. "Teacher Incentives." American Economic Journal: Applied Economics, 2(3): 205-27. PDF
Kremer, Michael and Daniel Chen. 2001. “Interim Report on a Teacher Incentive Program in Kenya.” Mimeo.
Muralidharan, Karthik and Venkatesh Sundarraman. 2011. "Teachers Performance Pay: Experimental Evidence from India." Journal of Political Economy 119(1):39-77. PDF
Olken, Benjamin, Junko Onishi, and Susan Wong. "Should Aid Reward Performance? Evidence from a Field Experiment on Health and Education in Indonesia." Forthcoming, American Economic Journal: Applied Economics. PDF