Organizational Mission, Financial Rewards and Performance of Bureaucrats

Muhammad Yasir Khan (University of California Berkeley)

Abstract : Motivating bureaucrats to exert effort on their job is a central problem for many public sector organizations. In partnership with the health department in Pakistan, we study if bureaucracies can use the organizational mission to incentivize workers and compare the effectiveness of this strategy with a performance-based bonus scheme. We record four main results that shed light on how the public sector should design personnel policies. First, communicating the organizational mission is a viable strategy to motivate workers. Those who receive the mission treatment are five percentage points more likely to perform their duties and those that receive a performance-based bonus improve by nearly 10 percentage points, compared to control. The improvement in performance on extensive margin also leads to better health outcomes for children. Second, mission improves performance along multiple dimensions including teamwork and multiple tasks while bonus only improves it along the dimension linked directly to rewards. Third, providing a bonus in the presence of a mission lowers the effectiveness of bonus. Workers in this group serve 11 extra households, as opposed to 16 extra households in just the bonus group. Finally, the main channel for the mission to motivate workers is through their beliefs about the importance of mission for their work, and workplace norms do not appear to be strong drivers of behavior.

Adverse Selection Does Not Explain Why Utilization Rises with Premiums: Evidence from a Health Insurance Experiment in India

Cynthia Kinnan (Tufts University)
Anup Malani (University of Chicago)
Alessandra Voena (University of Chicago)
Gabriella Conti (University College London)
Kosuke Imai (Harvard University)

Abstract : Information asymmetries or community-rating can lead to adverse selection into health insurance. We use a multi-armed RCT that varies insurance premiums to study selection into a health insurance program in India, Rashtriya Swasthya Bima Yojana (RSBY). Limited fiscal capacity in low and middle income countries (LMICs) may necessitate charging premiums, which may exacerbate adverse selection. Moreover, the degree of selection may differ in LMICs due to limited healthcare supply and knowledge, and constraints that interact with selection in a priori ambiguous ways, e.g., liquidity. We find mixed evidence on selection into the program. While those who purchase insurance when premiums are high use insurance more, they are no higher risk than those who purchase at lower prices. To interpret these findings we appeal to a literature in development economics that studies why price sometimes increases utilization of a product. That literature suggests three explanations: selection, price as a signal of quality, and sunk costs. Given this framing, our positive correlation test is not dispositive because it is consistent with all three theories. However, the evidence that enrollment does not vary with risk is inconsistent with selection. We are also able to rule out that price signals quality. Our study employs a two-stage randomization that varies the premium that neighbors pay, holding constant what a household pays. We find that people do not utilize insurance more when their neighbors are charged a higher price. These results suggest that sunk costs effects, rather than adverse selection, explain the effect of price on utilization in our context.

Contract Design in China's Rural Land Rental Market: Contractual Flexibility and Rental Payments

Ziyan Yang (Xiamen University)

Abstract : I study bargaining over contract arrangements---contractual flexibility and rental payments---that profoundly affects the ex-post surplus of China's rural land rentals in the context of urban--rural separation. My theory suggests which equations should be estimated to test bargaining over multiple contractual terms. My theoretically justified empirical structure differs from conventional models and helps to explain seemingly inconsistent empirical results reported in the literature. Using transactional data representing the full distribution of rental attributes, I draw two conclusions while also supporting my characterization of the bargaining mechanism. First, compared with renting-in partners, renting-out agents respond more strongly to non-agricultural employment uncertainty induced by urban--rural separation, which increases contractual flexibility. Second, social proximity helps non-stranger entrepreneurs obtain low-flexibility contracts without fully compensating renting-out agents, suggesting that urban--rural separation erects a social barrier to strangers that village trust lowers because social proximity and contractual flexibility are substitutes only in low-trusting environments.