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Effort as Investment: Analyzing the Response to Incentives∗



We analyze a model in which incentives in one period on one task can affect output more broadly through learning. If agents can invest in human or organizational capital, then output will increase both before and after short-term incentives. We then evaluate these hypotheses using data from hospitals in England during a series of limited-time performance incentives offered by the government. We find empirically that performance trends sharply upwards at the incentive announcement, and that output does not drop off after the incentives end, matching the predictions of our model. We also examine performance along non-incentivized dimensions of quality of care and find little evidence of classical effort substitution

Topics: Incentives, public sector incentives, multi-tasking. JEL Codes, D20, H51, I12
Year: 2008
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