Do Financial Incentives in a Health Setting Have a Dark Side? Experimental Evidence from Zambia

Abstract:

The performance of the Zambian health sector remains of grave concern to policymakers. This is because health outcomes still remain disconcertingly high and the pace of their improvement has been sluggish. In response, health programmes aimed at improving productivity through the use of financial incentives to reward individual health personnel for their performance, have been implemented. This, however, contradicts agency theory on incentives in a multitasking framework, which predicts potential unintended effects: agents may inadvertently focus unequally on the outcomes with incentives at the expense of the non-incentivised outcomes. We employ a ‘health-framed’ field experiment with future and current Zambian medical doctors to investigate the extent to which financial incentives improve overall health worker effort, whether they can be accompanied by any adverse unintended distortionary effects on healthcare provider decision making and, whether such effects can be counteracted. Participant decisions effect the health of real patients. We find, that a performance-based financial incentive results in a significant distortionary effect in favour of the incentivised health resource. However, we find that provider effort is not significantly higher due to the performance-based financial incentive. Furthermore, we find that counteracting measures in the form of; observability of health resource allocation decisions, primes emphasising norms of professionalism and information making a non-incentivised health resource/outcome salient do not seem to have a counteracting effect on the distortionary effect of a financial incentive. Our findings imply that the use of financial incentives in settings characterised by multitasking, should be undertaken with caution given that incentivised agents are likely to focus on incentivised activities, at the expense of non-incentivised activities.

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