Coordination incentives, performance measurement, and resource allocation in public sector organizations

Why are coordination problems common when public sector organizations share responsibilities, and what can be done to mitigate such problems? This paper uses a multi-task principal-agent model to examine two related reasons: the incentives to coordinate resource allocation and the difficulties of measuring performance. The analysis shows that when targets are set individually for each organization, the resulting incentives normally induce inefficient resource allocations. If the principal impose shared targets, this may improve the incentives to coordinate but the success of this instrument depends in general on the imprecision and distortion of performance measures, as well as agent motivation. Besides decreasing available resources, imprecise performance measures also affect agents' possibility to learn the function that determines value. Simulations with a least squares learning rule show that the one-shot model is a good approximation when the imprecision of performance measures is low to moderate and one parameter is initially unknown. However, substantial and lengthy deviations from equilibrium values are frequent when three parameters have to be learned

Organizational coordination and costly communication with boundedly rational agents

How does costly communication affect organizational coordination? This paper develops a model of costly communication based on the weakest-link game and boundedly rational agents. Solving for the stochastically stable states, we find that communication increases the possibilities for efficient coordination compared to a setting where agents cannot communicate. But as agents face a trade-off between lowering the strategic uncertainty for the group and the costs of communication, the least efficient state is still the unique stochastically stable one for many parameter values. Simulations show that this is not just a long run phenomena, the stochastically stable state is the most frequent outcome also in the short run. Making communication mandatory induces efficient coordination, whereas letting a team leader handle communication increases efficiency when the leader expects others to follow and has enough credibility. The results are broadly consistent with recent experimental evidence of communication in weakest-link games

Information, Switching Costs, and Consumer Choice : Evidence from Two Randomized Field Experiments in Swedish Primary Health Care

Consumers of services that are financed by a third party, such as publicly financed health care or firm-sponsored health plans, are often allowed to freely choose provider. The rationale is that consumer choice may improve the matching of consumers and providers and spur quality competition. Such improvements are contingent on consumers having access to comparative information about providers and acting on this information when making their choice. However, in the presence of information frictions and switching costs, consumers may have limited ability to find suitable providers. We use two large-scale randomized field experiments in primary health care to examine if the choice of provider is affected when consumers receive comparative information by postal mail and small costs associated with switching are reduced. The first experiment targeted a subset of the general population in the Swedish region Skåane, and the second targeted new residents in the region, who should have less prior information and lower switching costs. In both cases, the propensity to switch provider increased significantly after the intervention. The effects were larger for new residents than for the general population, and were driven by individuals living reasonably close to alternative providers

Budgetprocessens betydelse för god ekonomisk hushållning

Att behålla budgetdisciplin och skapa förutsättningar för långsiktigt god ekonomisk hushållning är en ständigt närvarande utmaning för offentliga organisationer. Den företrädesvis nationalekonomiska forskningensom vi redogör föri denna rapport tyder påatt det är möjligt att förbättra den ekonomiska hushållningen genom att förbättra de regler, procedurer och normer som styr budgetprocessen.Ett flertal internationella studier har visat att god ekonomisk hushållning är förknippat med förekomsten av regler som gör detmöjligt för befolkningenatt enkelt följa uppekonomiska planer och utfall, somcentraliserar planeringsfasen (och därmed begränsarimplementerande enhetersinflytande över denna),och som kräver att vissa finansiella målinförsoch följsupp. En av osssjälva tidigaregenomförd studie tyder på att budgetprocessens utformning är av betydelseocksåför de svenska kommunerna (Dietrichson & Ellegård 2014):årets resultat per invånare är högre i kommuner vars budgetprocess är relativt centraliserad och där det finns en relativt hög risk att förvaltningschefer byts ut om deras förvaltningar uppvisarupprepade budgetunderskott. Dessutom ärårets resultat per invånare högre om nämnderna får behålla uppkomna överskott och för med sig underskott till nästkommande budgetår.Dentidigareforskningen, inklusive vår egen studie, har dock svårt att särskilja effekterna av budgetregler från effektenav attolika länder/regioner/kommuner har olika ambitionsnivå när det gäller god ekonomisk hushållning. Vidare har studierna som regel mättutfall på övergripande nivå –i vårt fall på kommunnivå –vilket är problematiskt då flera av de regler och processer som undersöks bör ha sin huvudsakliga effekt på enheter längre ner i hierarkin, i vårt fall på nämndnivå. I föreliggande rapportredovisarvi nya analyser,där vi kombinerat data över budgetutfallpå nämndnivå för de störstanämndernai de 290 svenska kommunerna meddeenkätdata över budgetprocessens utformningsom användes ivår tidigare studie.Viundersökertvå aspekter av budgetprocessen: 1) att över-och/ellerunderskott förs över till nästa budgetår och 2) risken för förvaltningschefer att bli ersatta vid upprepadeunderskott. Båda dessa faktorer visar sig hastatistiskt signifikanta samband med budgetutfallen på nämndnivå. Att behålla överskott, eller att ha som princip att byta ut förvaltningschefer efter upprepade underskott, ärförknippat med högre budgetöverskott.Att föra över underskott har istället ett negativt samband med nämndernas resultat. På grund av att de allra flesta kommuner som tillåter överföring av överskott också har motsvarande regel för underskott är det dock oklart om detta kan tolkas som att det är regeln i sig som är problematisk.Rapporten innehåller ocksåen kartläggning av förekomsten av finansiella måli kommunerna. Dettaär intressant inte bara som ett mått på ambitionsnivån hos kommunerna, utan även i termer av Kommunallagens 8 kap 5§ där det föreskrivs att den kommunala budgeten ska innehålla finansiella mål som är av betydelse förgod ekonomisk hushållning. Vår insamling visar att detta lagkrav följs i mycket stor utsträckning: 285 av290 kommuner redovisar finansiella mål i sina årsredovisningar. Värt att notera är att nästan alla kommuner har ett mål som relaterar till årets resultat, antingen formulerat som ett direkt resultatmål eller som ett mål kring nettokostnadernas andel av totala skatteintäkter. Det är ocksåvanligt att ha mål kring självfinansieringsgraden avinvesteringarna (finns i 51 procent av kommunerna), soliditeten (35 procent) ellerhanteringen av låneskulden (27 procent).Det finns skäl att vara försiktig med att tolkade positiva sambanden mellan budgetregler och mått på god ekonomisk hushållning som att budgetregler orsakarbättre ekonomisk hushållning. Vi diskuterar detta och andra problem mer ingående i ett avslutande kapitel. Sammanfattningsvis är dock vår bedömning att det är troligt att budgetregler är ett fungerande verktygoch vår förhoppning är att denna rapport kan tjäna som inspiration till kommuner och landsting som vill förbättra sin ekonomiska hushållning

Randomised controlled trials in Scandinavian educational research

Background: The Scandinavian countries have a long history of implementing social interventions, but the interventions have not been examined using randomised controlled trials until relatively recently compared with countries like the United States and the United Kingdom. Purpose: The purpose of this paper is to examine the history of randomised controlled trials in Scandinavian compulsory schools (grades 0–10; pupil ages 6–15). Specifically, we investigate drivers and barriers for randomised controlled trials in educational research and the differences between the three Scandinavian countries Denmark, Norway, and Sweden. Methods: To locate relevant trials, we performed a systematic search of four bibliographic databases and a search for grey literature. Results were combined with trials located through direct contact with researchers and government officials. A trial was included if one or more interventions were randomly assigned to groups of students and carried out in a school setting with the primary aim of improving the academic performance of children aged 6–15 in grades 0–10 in Denmark, Norway, or Sweden. We included both conducted and ongoing trials. Publications that seemed relevant were screened based on full-text versions. Data extraction included information from the included studies on grade level, study period, sample size (N), project owner, funding source, and theme. In addition, we conducted two semi-structured interviews by phone or in person with central employees in funding agencies and ministries and 25 correspondences with researchers and policymakers. Findings and conclusion: RCTs in grades 0–10 were few in all of Scandinavia until about 2011, after which there was an increase in all three countries, although at different rates. The largest number of trials has been conducted in Denmark, and the increase is more marked in Denmark and Norway compared with Sweden. International trends towards more impact evaluations and results from international comparisons such as PISA have likely affected the development in all countries, but while many trials in Denmark and Norway are the result of policy initiatives, only one such example in Sweden was identified. We believe the lack of government initiatives to promote RCTs in Sweden is the most likely explanation for the differences across the Scandinavian countries. Funding and coordination from the government are often crucial for the implementation of RCTs and are likely more important in smaller countries such as the Scandinavian ones. Supporting institutions have now been established in all three countries, and we believe that the use of RCTs in Scandinavian educational research is likely to continue.publishedVersio

Designing Public Organizations and Institutions: Essays on Coordination and Incentives

This thesis consists of an introduction and four self-contained chapters that address issues of how organizations and institutions should be designed in order to provide adequate incentives and enable coordination. The first essay uses a multi-task principal-agent model to examine two reasons why coordination problems are common when public sector organizations share responsibilities: the incentives to coordinate resource allocation and the difficulties of measuring performance. When targets are set individually, the resulting incentives may induce inefficient resource allocations, even if agents' motivation is fully in line with the principal's interests, and performance measures are perfect. Introducing shared targets may improve the incentives to coordinate, especially when agents are highly motivated by activities for which responsibility is not shared, performance measures overestimate the value of these activities, and the imprecision of performance measures is low. Simulations indicate that the one-shot model is a good approximation in the short run when one parameter is initially unknown, but imprecise measures yield substantial deviations from equilibrium when three parameters have to be learned. The second essay develops a model of costly communication with the weakest-link game as a basis, and boundedly rational agents that choose myopic best replies, have limited information processing capabilities, and may occasionally experiment or make mistakes. Communication may increase efficiency, but as agents face a trade-off between lowering the strategic uncertainty for the group and the costs of communication, the least efficient state is often the unique stochastically stable state. Making communication mandatory on the other hand induces efficient coordination, whereas letting a team leader handle the communication increases efficiency when the leader expects others to follow and has enough authority over the group. Simulations show that the stochastically stable state is also overrepresented in the short run, especially if groups are large. The third essay examines theoretically and empirically the relationship between budget institutions and fiscal performance in local governments. The model suggests that conflicts of interest over fiscal discipline between the central and the local levels imply that the central level needs institutions that curb the bargaining power and align the incentives of the local levels. A survey covering 265 out of 290 Swedish municipalities is used to collect information on conflicts of interests and budget institutions. The regression results indicate that interactions between institutions and conflicts of interest are important, as the estimated correlations depend on the strength of conflicts. Centralization of the budget process, a credible threat of replacement of managers following systematic deficits, and surplus carry-over rules all appear beneficial to net revenues, but only in municipalities that report substantial conflicts of interest. For municipalities where the conflict is small, a deficit carry-over rule is positively correlated to net revenues. The fourth essay examines a case in which the Swedish central government provided conditional grants to 36 financially troubled municipalities. The synthetic control method is used to identify suitable comparison units for each of the 36 municipalities. The estimates of fixed effects regressions on the resulting sample indicate that for most of the admitted municipalities, costs seem to be largely unaffected by the program. However, a non-negligible share is able to hold back costs more than expected, and the development of net revenues is favorable for the group as a whole. Thus, participation in a conditional bailout program need not erode fiscal discipline, and may even induce a greater concern for fiscal discipline

Introducing Competition in Public Services - the Case of the Swedish Compulsory School

Abstract The subject of this thesis is introduction of competition in public services and its effects on public sector efficiency generally, and the Swedish compulsory school specifically. The issue is studied in a theoretical framework of institutional and transaction cost theory. A concentration ratio competition measure is developed, covering public and private competition, as well as competition between public schools. Efficiency is divided into costs and quality. Since quality is difficult to observe, student achievement – in the form of school level national standardized test scores from 2004 – is used as a quality measure instead. A fixed effects model is employed in the cost analysis on a panel data set of total school costs per student in the municipalities from 1998-03, whereas the effects on student achievement are estimated with a cross-sectional OLS model. No statistically significant effects are found on either costs or student achievement. Comparisons show that the cost results are similar to earlier studies made in a Swedish context. But the results of the student achievement analysis differ in certain respects. A likely explanation to this is the difference in data used. Suggestions to why the effect of competition is not more noticeable include the lack of measurability of school outputs and outcomes and the Swedish institutional arrangement, which disallows price competition and implies incentives for independent private schools to start up in high cost municipalities