Performance Pay in Insurance Markets: Evidence from Medicare

Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of highrated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties.

A FMEA Based Method for Analyzing and Prioritizing Performance Risk at the Conceptual Stage of Performance PSS Design

With the quest for enhancing competitive position, fulfilling customer and sustainability demands, increasing profitability, asset manufacturing companies are now adapting assets towards product service systems (PSS) offered through performance contracts. Despite several benefits, the shift to performance PSS exposes industrial asset manufacturers' to performance challenges and risks. Currently, PSS designers face a challenge to exhaustively identify potential failures during PSS development. Knowledge of Product failures is critical prior to the engineering of PSS. This paper proposes a failure modes and effects analysis (FMEA) method to support designers' prioritise critical failures in performance PSS development. A case study of an optical sorting machine is used to demonstrate the method's application.

Recruitment, Effort, and Retention Effects of Performance Contracts for Civil Servants: Experimental Evidence from Rwandan Primary Schools

This paper reports on a two-tiered experiment designed to separately identify the selection and effort margins of pay for performance (P4P). At the recruitment stage, teacher labor markets were randomly assigned to a “pay-for-percentile” or fixed-wage contract. Once recruits were placed, an unexpected, incentive-compatible, school-level re-randomization was performed so that some teachers who applied for a fixed-wage contract ended up being paid by P4P, and vice versa. By the second year of the study, the within-year effort effect of P4P was 0.16 standard deviations of pupil learning, with the total effect rising to 0.20 standard deviations after allowing for selection. (JEL C93, I21, J23, J33, J41, J45, O15)

Effects of incentive framing on performance and effort: evidence from a medically framed experiment

We study the effects on performance of incentives framed as gains or losses, as well as the effort channels through which individuals increase performance. We also explore potential spill-over effects on a non-incentivised activity. Subjects participated in a medically framed real-effort task under one of the three contracts, varying the type of performance incentive received: (1) no incentive; (2) incentive framed as a gain; or (3) incentive framed as a loss. We find that performance improved similarly with incentives framed as losses or gains. However, individuals increase performance differently under the two frames: potential losses increase participants’ performance through a greater attention (fewer mistakes), while bonuses increase the time spent on the rewarded activity. There is no spill-over effect, either negative or positive, on the non-incentivised activity. We discuss the meaning and implications of our results for the design of performance contracts.