Do financial incentives in a health setting have a dark side: Experimental evidence from Zambia

Project Active from to State

Agency Theory postulates that the use of financial incentives in multitasking or multidimensional settings such as in health settings can potentially result in two opposing effects. First, an effort enhancing effect where agents react to the financial incentive by enhancing their effort and productivity. Second, the theory postulates that in contexts in which the financial incentives are only directed towards some aspects or dimensions of agents output and not to others, potentially unintended, distortionary effects can arise, where agents directing more attention on those outputs or dimensions of outputs that are incentivised, to the detriment of non-incentivised outputs.

The objective of this study is to investigate health sector employees’ behaviour in managing the interaction between the effort enhancing and the distortionary effects of financial incentives. The study will seek to specifically answer the following questions:

  • Does the distortionary effect of a financial incentive exist in a setting characterised by high levels of intrinsic motivation, in this case, a health setting;
  • Does the effort enhancing the effect of a financial incentive outweigh the distortionary effect the incentive; and
  • Does the observability of health resource allocation decisions alter health sector employees’ behaviour and counteract any distortionary effects of the financial incentive?

The study will be implemented as a laboratory-in-the-field experiment. The sample of participants will include current and future health sector employees, medical doctors and medical students. The study will utilise two tasks, which are the  ‘health-framed real effort task’ and the novel ‘health resource allocation task.’  Participants will be randomly allocated into two treatments and a control group, then asked to complete the effort and health resource allocation tasks and will either knowingly receive a financial incentive, receive a financial incentive but have their health resource allocation decisions be communicated to other participants or not receive a financial incentive with their health resource allocation decisions not being known.

The Zambian Ministry of Health with the support of the World Bank and other stakeholders have continued to use financial incentives as part of the Health Systems Strengthening (HSS) programme. There is, therefore, a need to provide policymakers with evidence as to whether the use of financial incentives can lead to or result in such adverse and unintended effects as predicted by Agency Theory. Such evidence will be critical in guiding the implementation of key national development initiatives such as the National Health Strategic plan (2017-2021) and the health sector focused elements of the Seventh National Development Plan.