Journal of the European Economic Association
Unlike performance incentives for private sector managers, little is known about performance incentives for managers in public sector bureaucracies. Through a randomized trial in rural China, we study performance incentives rewarding school administrators for reducing student anemia -- as well as complementarity between incentives and orthogonally assigned discretionary resources. Large (but not small) incentives and unrestricted grants both reduced anemia, but incentives were more cost-effective. Although unrestricted grants and small incentives do not interact, grants fully crowd-out the effect of larger incentives. Our findings suggest that performance incentives can be effective in bureaucratic environments, but they are not complementary to discretionary resources.