INCENTIVES AND THEIR DYNAMICS IN strongPUBLIC SECTORstrong PERFORMANCE.pdf

INCENTIVES AND THEIR DYNAMICS IN strongPUBLIC SECTORstrong PERFORMANCE.pdf

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INCENTIVES AND THEIR DYNAMICS IN PUBLIC SECTOR PERFORMANCE MANAGEMENT SYSTEMS Carolyn J. Heinrich LaFollette School of Public Affairs University of Wisconsin-Madison Gerald Marschke Department of Public Administration Policy and Department of Economics State University of New York at Albany, NBER and IZA1 May 31, 2009 Preliminary; please do not quote or cite without permission 1 This paper was completed while Marschke was visiting the Kennedy School of Government and the Labor and Worklife Program at Harvard Law School. Marschke gratefully acknowledges both institutions’ hospitality. Abstract We use the principal-agent model as a focal theoretical frame for synthesizing what we know both theoretically and empirically about the design and dynamics of the implementation of performance management systems in the public sector. In this context, we review the growing body of evidence about how performance measurement and incentive systems function in practice and how individuals and organizations respond and adapt to them over time, drawing primarily on examples from performance measurement systems in public education and social welfare programs. We also describe a dynamic framework for performance measurement systems that takes into account strategic behavior of individuals over time, learning about production functions and individual responses, accountability pressures, and the use of information about the relationship of measured performance to value-added. Implications are discussed and recommendations derived for improv

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