Can Bureaucrats Really Be Paid like CEOs? School Administrator Incentives for Anemia Reduction in Rural China

A large literature examines performance pay for managers in the private sector, but little is known about performance pay for managers in public sector bureaucracies. In this paper, we study performance incentives rewarding school administrators for reducing anemia among their students. Randomly assigning 170 schools to three performance incentive levels and two orthogonal sizes of unconditional grants, we analyze performance pay and its complementarity with discretionary resources. We find that both large incentives and larger unconditional grants reduced anemia substantially, but incentives were more cost-effective. Performance incentives led administrators to innovate by working with parents, mitigating potentially offsetting compensatory behavior among households. Strikingly, we also find that larger unconditional grants completely crowded-out the effect of incentives. Our findings suggest that performance incentives can be effective in bureaucratic environments – but also that discretionary resources can fully crowd-out their effect. NBER WORKING PAPER SERIES CAN BUREAUCRATS REALLY BE PAID LIKE CEOS? SCHOOL ADMINISTRATOR INCENTIVES FOR ANEMIA REDUCTION IN RURAL CHINA Renfu Luo Grant Miller Scott Rozelle Sean Sylvia Marcos Vera-Hernández Working Paper 21302 http://www.nber.org/papers/w21302 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 June 2015 We are grateful to Dana Andersen, Antonio Cabrales, Syngjoo Choi, Adeline Delavande, Katherine Donato, Will Dow, Eric French, Vivian Hoffmann, Rob Jensen, Victor Lavy, Hamish Low, Aprajit Mahajan, Ian Preston, Carol Propper, Imran Rasul, Pedro ReyBiel, and Alessandro Tarozzi for helpful comments and discussions. We also thank Alexis Medina at the Rural Education Action Program as well as students from the Center for Experimental Economics in Education at Shaanxi Normal University for project support. Soledad Giardili provided excellent research assistance. We are grateful to the National Institutes of Health (Grant Number: R01 HL106023) as well as the Global Under-development Action Fund the Walter H. Shorenstein Asia-Pacific Research Center at Stanford University for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2015 by Renfu Luo, Grant Miller, Scott Rozelle, Sean Sylvia, and Marcos Vera-Hernández. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Can Bureaucrats Really Be Paid Like CEOs? School Administrator Incentives for Anemia Reduction in Rural China Renfu Luo, Grant Miller, Scott Rozelle, Sean Sylvia, and Marcos Vera-Hernández NBER Working Paper No. 21302 June 2015, Revised December 2015 JEL No. C93,H40,I12,M52,O15