The Allocation of Incentives in Multi-Layered Organizations

Erika Deserranno, Stefano Caria, Philipp Kastrau and Gianmarco Leon-Ciliotta

No 17303, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A classic problem faced by organizations is to decide how to distribute incentives among their different layers. By means of a field experiment with a large public-health organization in Sierra Leone, we show that financial incentives maximize output when they are equally shared between frontline health workers and their supervisor. The impact of this intervention on completed health visits is 61% larger than the impact of incentive schemes that target exclusively the worker or the supervisor. Also, the shared incentives uniquely improve overall health-service provision and health outcomes. We use these experimental results to structurally estimate a model of service provision and find that shared incentives are effective because worker and supervisor effort are strong strategic complements, and because side payments across layers are limited. Through the use of counterfactual model experiments, we highlight the importance of effort complementarities across the different layers of an organization for optimal policy design.

Date: 2022-05
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