The evolution of sharing rules in rent seeking contests: Incentives crowd out cooperation

Modern societies are characterized by competing organizations that rely predominantly on incentive schemes to align the behavior of their members with the organizations’ objectives. This study contributes to explaining why in so many cases incentive schemes have gradually crowded out cooperation as an organization device. Our explanation does not draw on free-riding, the obvious Achilles’ heel of cooperation, but relies completely on fundamental group contest mechanisms. By investigating a canonical rent seeking model and adopting an evolutionary perspective, the analysis identifies shortcomings in previous results, sets the record straight, and explains why the process of incentivizing organizations is protracted.     

False or fitting recognition? The use of high performance bonuses in motivating organizational achievements

This research undertakes a theoretical and empirical examination of (high performance bonus) systems in government, that is, incentive payments awarded by the federal government to state organizations or statewide programs to motivate and recognize high performance achievements. The paper draws from a multidisciplinary literature on incentives in organizations to first derive implications for the design and implementation of high performance bonus systems. An empirical analysis of the Workforce Investment Act performance bonus system and its effectiveness in recognizing and rewarding performance follows. The results of the theoretical and empirical investigation suggest that high performance bonus systems are more likely to encourage misrepresentation of performance and other strategic behaviors than to recognize and motivate exceptional performance or performance improvements. © 2007 by the Association for Public Policy Analysis and Management     

Financing smallholder production: A comparison of individual and group credit schemes in Zimbabwe

Credit programmes aimed at individual smallholders in Africa have had disappointing results, particularly with regard to loan repayment. This article enquires whether group lending under terms of joint liability is a more effective approach. Data are derived from the performance of smallholder credit schemes in Zimbabwe in the period 1980–1984. The findings are as follows: (a) access to credit is easier for small farmers if they belong to voluntary agricultural associations; (b) loans issued on terms of joint liability have lower administrative costs; (c) most importantly, joint liability arrangements lead to higher repayment rates than schemes based on individual liability; (d) although joint liability is better enforced by mandatory sanction than by selective incentive, this advantage is offset by a disintegrative effect on farmer organizations. The conclusion is that a policy of group lending is generally more viable than an individual approach, but only in the context of the creation and strengthening of local farmer institutions.     

Moral hazard in work organizations: A comment on Gaynor,Eswaran and Kotwal,and Holmström

A key question in the economics of organization is whether it is possible to induce a group of employees to produce some quota of labor desired by the director of their organization. Holmström (1982) argued that it is possible to achieve the desired result via a simple incentive scheme. The essence of the scheme is to pay the employees only if they reach the quota; if they fail, the director is allowed to take what they have produced and use it for his own compensation. In response, Eswaran and Kotwal (1984) pointed out that because the director's compensation is smaller if the employees succeed in reaching the quota than if they fail, he has an incentive to bribe an employee to shirk, thus guaranteeing that the quota is not reached. The director, in other words, is subject to moral hazard. In a recent issue of Public Choice, Gaynor (1989) criticized the Eswaran-Kotwal argument by suggesting that it is possible to design incentive schemes which eliminate the director's moral hazard problem. In this note, we defend the Eswaran-Kotwal argument, and raise further questions about the assumptions upon which Holmström's incentive scheme is based.     

The classification of electoral systems: Bringing legislators back in

It is widely assumed that electoral institutions shape politicians' incentive for personal vote-seeking, with important behavioral and policy consequences. Yet, there is a surprising lack of consensus on how to compare real-world electoral institutions. Using new data this paper examines how legislators' own perception of their electoral incentives in fifteen democracies correspond to some of the most seminal classification schemes in political science. Our survey of 2326 legislators – the empirically broadest study of personal vote orientation so far conducted – demonstrates that legislators do not always understand electoral incentives in the same way scholarly rankings do, highlighting the need for scholars of political institutions to justify their choice of classification scheme. If not, an entire body of literature may be misguided.     

Donors’ Responses to Profit Incentives in the Social Sector: The Entrepreneurial Orientation Reward and the Profit Penalty

This study uses an online survey experiment to test whether the pairing of profit-seeking with mission-related programs in the social sector attracts or deters donations from individual donors. We test individuals’ response to three types of profit incentives allowed under current U.S. public policy: (1) non-distributed profit to an organization, which is allowed for nonprofit entities; (2) profit to the organization's equity investors and owners, which is allowed under for-profit social enterprise governance charters; and (3) profit to lending investors, which is introduced by social impact bonds, a pay-for-success policy tool. We test trust theory, under which profit incentives deter donors against entrepreneurial orientation (EO) theory, which suggests that donors are attracted to organizations that use innovative, market-driven programs. Findings indicate support for both theories, but the support depends on how the specific profit incentive is structured. Donors support organizations that use profit-generating social enterprise programs—but only when the profits are non-distributable; donors’ support is significantly lower for social enterprises in which owners and equity investors may profit. Importantly however, this negative effect is not found for pay-for-success policy tools where lending investors, rather than equity investors and owners, receive profits.     

Drifting towards convergence? Motivation and performance management in state and private companies in the provision of telecom services in Ghana

The concept of expectancy on which many of the theories of workplace incentive programmes are based, claims that when employees are given a particular level of motivation, it will result in some level of performance. The general perception in Ghana is that public sector employees do not perform as efficiently as private sector workers because they lack incentives to do so. However, few studies have compared the incentive structures of the two sectors. Using empirical evidence from four telecom companies in Ghana, this article shows that the gaps between ‘state’ and ‘private’ have narrowed. Also, while incentive structures such as salary, fringe benefits and job (in)security are converging, critical performance management processes like employees' participation in decision‐making, performance appraisal, monitoring and credibility of sanctions are drifting apart. This article concludes that differences in performance between state and private companies may be explained by performance management processes and not incentive structures. It cautions that improved salaries and other office perquisites may not by themselves achieve organisational performance. Rather, incentives should be embedded in a broader approach through effective performance management processes. The information in the article is relevant to the ‘borderline’ part of the public sector under a deregulated environment. Copyright © 2007 John Wiley & Sons, Ltd.     

The Effects of New Public Management: Activity‐based Reimbursement and Efficiency in the Scandinavian Hospital Sectors

Activity‐based reimbursement (ABR) is a key element in the New Public Management reform programme. In recent decades ABR has replaced or supplemented frame‐based reimbursement (FRB) in the Scandinavian hospital sectors, and political decision makers have widely believed that ABR would improve efficiency. This article systematically describes and compares 12 studies and their results to determine whether research supports this belief. The article has two main conclusions. First, existing research provides a much more blurry picture than envisaged by decision makers. Studies with positive and non‐positive results are approximately equal in number, even when the quality of research designs is taken into account. Second, it is quite likely that the blurry picture is caused mainly by the low credibility of the new ABR schemes, which has undermined the incentives for greater efficiency that the new schemes should provide. The issue of credibility is not tested in existing research and is thus a particularly promising avenue for future research into the effects of economic steering tools like ABR.     

Interlocal Collaboration and Local Fiscal Structure: Do State Incentives Matter?

Interlocal collaboration is considered an important tool for cost-saving. States, therefore, have incentivized interlocal collaboration in different ways. To understand the budgetary consequences of interlocal collaboration and state incentives, we examine counties in Nebraska where the State uses two incentive mechanisms—resource restrictions and additional access to restricted revenues granted to counties with collaboration. This study finds that county expenditures are lower when they spend more through collaboration. While this lower spending is related to lower revenues in counties less constrained by state restrictions, the results for counties more constrained are unclear. State incentive structures may matter for such variations.     

Organizational Behavior and Economic Growth: A Norwegian Perspective*

By using game-theory, it is indicated that encompassing organizations may participate in dilemma games with free-rider problems. Next, examinations of institutional details of Norwegian corporatism point out that creative or productive strategies may be quite likely even among small interest organizations. In the last section it is argued that the assumption of economic growth being a collective good is more acceptable the larger the public sector. Again, institutional details need to be in focus. The model closing the paper dwells on whether comprehensive organizations really have stronger incentives to choose creativity rather than to fight for redistributions. A general affirmative answer cannot be provided.     

Central Banker Contracts, Incomplete Information, and Monetary Policy Surprises: In Search of a Selfish Central Banker?

Approaching monetary policy as a principal-agent problemprovides a useful framework for interpreting alternativedelegation schemes. In this paper, we consider theeffectiveness of central banker incentive schemes when theprincipal delegates monetary policy through contracts butremains uncertain about the central banker's responsiveness tosuch schemes. We adopt a simple principal-agent model andassume that the central banker's trade-off between socialwelfare and the incentive scheme is private information. Weconsider two types of central bankers; one who responds to theincentive scheme (``selfish'') and one who does not and onlycares about social welfare (``benevolent''). We demonstratethat when a benevolent central banker accepts a contractdesigned for a selfish central banker, positive inflationsurprises occur and output exceeds its natural rate. Wefurther show that a benevolent central banker with aninflation bias has an incentive to masquerade as selfish.Mechanisms exist that solve that problem by achievingpreference revelation. We consider a simple mechanism indominant strategies that induces the benevolent type eithernot to breach or not to accept the appointment (contract) inthe first place. This multi-period mechanism works with eitherinflation targets, or the appointment of a conservativecentral banker. Our results suggest that more complicatedincentive schemes, embedded within broader constitutionalarrangements, are required in the presence of privateinformation for them to work effectively.     

International Comparison of Public and Private Employees’ Work Motives,Attitudes, and Perceived Rewards

This article presents a conceptual perspective on the distinctive characteristics of public organizations and their personnel. This perspective leads to hypotheses that public organizations deliver distinctive goods and services that influence the motives and rewards for their employees. These hypotheses are tested with evidence from the International Social Survey Programme in order to compare public and private employees in 30 nations. Public employees in 28 of the 30 nations expressed higher levels of public‐service‐oriented motives. In all of the countries, public employees were more likely to say they receive rewards in the form of perceived social impact. In most of the countries, public employees placed less importance on high income as a reward and expressed higher levels of organizational commitment.

Practitioner Points

• The findings presented here add to previous evidence that public employees seek and attain more altruistic and public‐service‐oriented rewards than private sector employees. In particular, we add evidence that these differences hold in many different nations and cultural contexts.
• Compensation and incentive system reforms in many governments have often concentrated on financial incentives and streamlining procedures for discipline and removal. Such matters are important but should not drive out concerns with showing public employees the impact of their work on the well‐being of others and on the community and society. Leaders and managers should invest in incentive systems that emphasize such motives and rewards.
• Leaders and managers should invest in the use of altruistic and socially beneficial motives and rewards in recruiting systems.

     

The Political Costs of Crisis Bargaining: Presidential Rhetoric and the Role of Party

We analyze the first large‐scale, randomized experiment to measure presidential approval levels at all outcomes of a canonical international crisis‐bargaining model, thereby avoiding problems of strategic selection in evaluating presidential incentives. We find support for several assumptions made in the crisis‐bargaining literature, including that a concession from a foreign state leads to higher approval levels than other outcomes, that the magnitudes of audience costs are under presidential control prior to the initiation of hostilities, and that these costs can be made so large that presidents have incentive to fight wars they will not win. Thus, the credibility of democratic threats can be made extremely high. We also find, however, that partisan cues strongly condition presidential incentives. Party elites have incentives to behave according to type in Congress and contrary to type in the Oval Office, and Democratic presidents sometimes have incentives to fight wars they will not win.     

Limitations of the KISS Principle and a Strong Organizational Society: A Rejoinder to Wollebæk and Selle

In their discussion of my article, Dag Wollebæk and Per Selle agree with my central point that changes in the institutional and socio-political context are likely to affect the engagement-values relation over time, and that more theoretical and empirical research is required to better understand the underlying connections. They then highlight a number of weaknesses in my empirical analysis. First, they criticize the operationalization of the isolated–connected distinction I borrow from Paxton, and point to the scope of engagement as a way of ‘keeping it simple’. Second, they express disbelief in the apparent strength of the correlations at the individual level compared to the aggregate level in my analysis, and assert that an ‘organizational society of broad scope’ is primary. In this rejoinder, I briefly discuss both comments.     

Testing Islam's Political Advantage: Evidence from Indonesia

Across the Muslim world, Islamic political parties and social organizations have capitalized upon economic grievances to win votes and popular support. But existing research has been unable to disentangle the role of Islamic party ideology from programmatic economic appeals and social services in explaining these parties' popular support. We argue that Islamic party platforms function as informational shortcuts to Muslim voters, and only confer a political advantage when voters are uncertain about parties' economic policies. Using a series of experiments embedded in an original nationwide survey in Indonesia, we find that Islamic parties are systematically more popular than otherwise identical non‐Islamic parties only under cases of economic policy uncertainty. When respondents know economic policy platforms, Islamic parties never have an advantage over non‐Islamic parties. Our findings demonstrate that Islam's political advantage is real, but critically circumscribed by parties' economic platforms and voters' knowledge of them.     

Credible Commitment and Council-Manager Government: Implications for Policy Instrument Choices

The credible constraint of morally hazardous or opportunistic behavior can enhance efficiency. This idea is applied to an examination of local government institutions to identify how council-manager government constrains opportunism in economic development by substituting low-power bureaucratic incentives for high-power electoral incentives. A panel design isolates changes in the use of development strategies or instruments in 516 cities.
The central argument presented here is that the Progressive ideology of the separation of politics and administration, institutionalized in the council-manager plan, allows administrators and elected officers to more easily resist opportunistic behavior. Economic and political forces have significant effects that are different for mayor-council communities than for council-manager communities. The influence of strategic planning is evident in council-manager cities, but not in mayor-council communities. Under council-manager government, development is carried out in a discriminating manner, leading to lower levels of financial incentives but more loan and business-attraction programs. In conclusion, the authors discuss how the career patterns of city managers are shaped by the incentive structures created by the council-manager plan.     

Incentive Effects of Expanding Federal Mass Transit Formula Grants

Public subsidies to industries firms incentives to alter their behavior. When calculating the effects of such programs, previous assessments of transit subsidies have not included the effects of these incentives on the firms' output. This article reports the responses of mass transit firms to the federal transit subsidy program and changes the Transportation Equity Act for the 21st Century (TEA 21) made to that program, as predicted by a structural model of output choice. TEA 21 increases bus service in medium‐sized cities by 6‐8 percent, butincreases service in large cities by only 1‐2 percent. The formula's incentive tier is weak, and the size of the subsidy depends little on whether that output results in increased ridership. The formula could be redesigned to provide stronger incentives to lower cost and increase ridership, thus encouraging a more efficient response from transit firms. © 2001 by the Association for Public Policy Analysis and Management.     

Might Makes Right: War-Related Payments in Bosnia and Herzegovina

ABSTRACT

This article explores the patterns of distribution of material reparations (compensation) for victims and veterans in post-1995 Bosnia and Herzegovina. Drawing on bottom-up approaches to reparative justice and critical peacebuilding, it explains the existing material reparation schemes in Bosnia as outcomes of the post-war transition and interests of the main transitional actors. It first explores the different approaches to war-related compensation for victim and veteran groups and then demonstrates that veterans have formed powerful pressure groups, drawing on extensive political and economic resources. Their organizations have been receiving socioeconomic support in exchange for electoral endorsement and public political support. As victims are fragmented ethno-nationally, by categories, and also lack capacities, their means to leverage the authorities for change are limited, even when matched with NGO and international support. This paper argues that unless material reparation is distributed in a transparent and consistent manner, it may create additional social cleavages and tensions.