Making Moves Matter: Experimental Evidence on Incentivizing Bureaucrats through Performance-Based Transfers

Transfers are often used by bureaucracies, especially in emerging economies, in an attempt to reward or punish their staff. Yet we know little about whether, and how, transfer mechanisms can help incentivize performance. Using transfers to induce performance is challenging, as heterogeneity in preferences over which postings are desirable non-trivially impacts the effectiveness of such schemes. We propose and examine the properties of a mechanism, which we term a performance-ranked serial dictatorship, in which individuals sequentially choose their desired location, with their rank in the sequence based ontheir performance. We then evaluate the effectiveness of this mechanism using a two-year field experiment with over 500 property tax inspectors in Punjab, Pakistan. We first show that the mechanism is effective: being randomized into the performance-ranked serial dictatorship leads inspectors to increase the growth rate of tax revenue by between 44 and 80 percent. We then use our model, combined with preferences collected at baseline from all tax inspectors, to characterize which inspectors face the highest marginal incentives under the scheme. We find empirically that these inspectors do in fact increase performance more under the scheme. We estimate the cost from disruption caused by transfers to be small, but show that applying the scheme too frequently can reduce performance. On net the results suggest that bureaucracies have tremendous potential to improve performance by periodically using transfers as an incentive, particularly when preferences over locations have a substantial common component. ∗This project is the result of collaboration among many people. We thank Parag Pathak for helpful comments . We thank Gabriel Kreindler, Alyssa Lawther, Ismail Khan, Kunal Mangal, Wayne Sandholtz, Mahvish Shaukat, and Gabriel Tourek for outstanding research assistance in Cambridge and Zahir Ali, Osman Haq, Turab Hassan, Zahra Mansoor, Obeid Rahman, Ali Abbas, Shahrukh Raja, Adeel Shafqat, and Sadaqat Shah for outstanding research assistance in Lahore. We thank all the Secretaries, Director Generals, Directors, the two Project Directors from the Punjab Department of Excise and Taxation, the Punjab Finance, Planning and Development departments and the Chief Secretary and Chief Minister’s offices for their support over the many years of this project. Financial support for the evaluation came from 3ie, the IGC, and the NSF (under grant SES-1124134). The views expressed here are those of the authors and do not necessarily reflect those of the many individuals or organizations acknowledged here.