Public Sector Leadership

Morten Bennedsen (INSEAD and University of Copenhagen)
Fracisco Pérez-Gonzàlez (ITAM)
Margarita Tsoutsoura (Cornell University)
Daniel Wolfenzon (Columbia University)

Abstract : We document the importance of leadership on employee effort in the public sector in Denmark. Using hospitalization of leaders, we show the causal impact of leaders on employee effort measured through employee absenteeism in the entire public sector and in the three main sub sectors of health, education and public administration. We identify four aspects of leadership (personal traits; shocks and use of prescription medicine; incentives structures; and, unit organization) and document the correlation with employee absenteeism. We then decompose absenteeism into selection (employee) effects and incentives (unit) effects and we find that the incentives effects explains between 50 pct and 60 pct of the variation in effort. We show important variation in the correlation between the four leadership characteristics and incentives and selection effect across the three main sub sectors. Our result are consistent with the notion that leaders personal characteristics and their actions are crucial in promoting employee effort in the public sector.

Competition and Reciprocity Based Incentives

Florian Englmaier (LMU Munich)
Dominik Grothe (LMU Munich)
Stephen Leider (Michigan Ross)

Abstract : The market competition literature verifies that firms provide stronger incentives to their managers to reduce costs in markets with more intense competition, even though profits become more volatile (Raith, 2003). Furthermore, when goods are substitutes, Cournot competition induces higher profits than Bertrand competition, but the type of competition becomes less important, the less related the goods are (Singh and Vives, 1984). In a laboratory experiment we find that gift-exchange emerges independently of the type and intensity of market competition. Whilst the competitive environment is a key factor for wage decisions and outcomes of principals, it has no direct impact on effort decisions of agents, which are mainly driven by wages. Beside that, individual characteristics (e.g. trust, loss aversion and reciprocity) are further key factors, which are influencing decisions and behavior in this gift-exchange setting.

Public Service Quality Under Civil Service Versus Fixed-term Employment: Evidence from Physician Supply of Primary Care

Sean Sylvia (University of North Carolina at Chapel Hill)
Hongmei Yi (Peking University)
Hao Xue (Stanford University)
Gordon Liu (Peking University)

Abstract : We compare the quality of primary care provided by physicians employed as civil servants with physicians hired on fixed-term contracts in China, where facilities employ physicians through both mechanisms. Using data from interactions with mystery patients, we find that physicians employed on fixed-term contracts substantially outperform civil service physicians despite having worse qualifications. This difference remains large after controlling for measures of physician disease-specific competence, intrinsic motivation, and other physician and clinic characteristics. Despite the potential for stronger incentives to generate clinic revenue, we also find no evidence that fixed-term physicians increase unnecessary treatments relative to civil service physicians.