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Mitigating Negative Consequences

A primary objective of reforms using quasi-markets is to change incentives, especially to shift those of the staff and employees to align their interests with the goals of increasing efficiency and quality. However, in introducing these new incentives, quasi-markets displace other traditional goals as well as introduce some new, perverse incentives that require subsequent monitoring, regulation, and corrective or compensatory policies.

Incentives and Motivations

Quasi-markets in personnel policies through various NPM measures are designed primarily to redress one core issue in motivation, shirking versus working, and tie rewards to a single financial motivation.18 Holmstrom and Milgrom (1991) show generally that stronger incentives for performing on measurable dimensions (e.g., costs and output) weaken incentives for doing well in other non-measurable dimensions (e.g., quality of services).19 As such, quasi-markets may displace or diminish other motivations employees have to provide efficient, high-quality service. Other motivations may include loyalty, esprit de corps and teamwork, the inherent value of service (especially in the so-called caring professions), professionalism, and career advancement (see Le Grand 2003 for a full theoretical analysis of motivations). Doctors, for example, may have strong ties to the profession, close bonds of collegiality, and other norms which may conflict with market incentives and individualized competition.20

Incentives are further complicated by the self-selection bias in the recruitment of health workers and teachers: those who chose these careers are often personally motivated to help other people and are potentially less responsive to other incentives. Analysts often note the religious schools and hospitals provide better, lower cost care, and presumably religiously inspired employees are less likely to respond to market incentives.21 Moreover, reforms that tie remuneration to individual performance (NPM measures such as pay for performance) can shift incentives and relations among employees in the same workplace. Competition among teachers, for example, can undermine teamwork and collaboration within schools, generate jealousies, and encourage teachers to offload problematic students onto unsuspecting colleagues (see also Le Grand et al. 2012).

As in other organizations and private companies, payment schemes can be adjusted to align a range of incentives. So, organizations can tie pay increases to some combination of individual performance on standardized quantitative measures (sales, e.g., for sales personnel, or student scores for teachers), collective performance measures (profits or median school test scores), and more holistic evaluations (supervisor recommendations) (on the complex measures in Chile, see Mizala and Schneider 2014a, Vaillant et al. this volume). However, even as providers design ever more sophisticated performance rewards, it is important to remember that some of the world’s best school systems such as Finland and South Korea (as measured in international tests like PISA [Programme for International Student Assessment]) offer few or no special shortterm pay incentives (see OECD 2009).

For parents, policies that encourage them to shop around for the best schools also discourage them from exercising voice. Where families are obliged to send their children to a particular local school, then pro-active parents have incentives to invest more in getting to know the school, learning how to voice their concerns, and developing parent networks and associations, rather than researching the comparative strengths of other schools they might decide to send their children to. More generally, of course, voice is central to the sorts of overall accountability mechanisms analyzed in Chap. 1.

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