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Delivering public services

26 October 2005

Governments around the world are searching for policies to boost the efficiency of the public sector.

The CMPO combines expertise in economics, geography and law. Its objective is to study the intersection between the public and private sectors of the economy, and in particular to understand the right way to organise and deliver public services. Much of its work seeks to answer key social science questions using large data sets to test predictions from theoretical models of behaviour. Examples of such questions are:

  • What is the impact of school choice on pupil segregation?
  • Does competition in healthcare lead to poorer outcomes?
  • Do people have the potential for choice in the NHS?
  • Are schools in the UK more ethnically segregated than our communities?
  • Does performance pay increase public sector productivity?

As well as using traditional survey data, members of the Centre are exploiting large-scale data sets, some of which are collected for administrative purposes rather than for research. These include:

  • the National Pupil Database, which contains information on all children in English state schools and includes information on their scores in national tests, where they live, and the resources of the household they live in;
  • data collected by the NHS on every hospital admission in England and Wales.

Centre members also make extensive use of the Bristol-based 'Children of the 90s' study (or Avon Longitudinal Study of Parents and Children - ALSPAC). The CMPO's aims are to produce scientific advances and to contribute 'hard' data to the public debate on social issues, and thereby inform policy-making.

Does competition in healthcare lead to poorer outcomes?

The introduction of competition and markets into public services has been a recurrent theme in recent reforms initiated by governments. However, whilst the rhetoric has been strong, evidence of the effectiveness of such reforms is somewhat weaker. Competition between suppliers of healthcare in the UK was introduced in 1991 on the basis of relatively little evidence about the impact of such competition on either costs or quality. Prior to that, publicly funded, hospital-based healthcare in the UK was supplied by hospitals that received funding directly from central Government, based on their local populations. In 1991 the Conservative administration introduced competition  on the supply side of the healthcare market by creating a set of buyers, funded by central government, who were free to purchase healthcare for their populations from both public and private sector suppliers.

Public sector suppliers were therefore set to compete both with each other and the private sector, for contracts from these centrally funded public buyers. Such competition was actively promoted up to the mid-1990s, and then somewhat downplayed. In 1997 the incoming Labour administration formally introduced policy change, stressing the role of co-operation over competition, though the separation between buyer and seller of healthcare remained - and remains currently.

Hospitals located in more competitive areas had higher death rates during the first part of the 1990s

Inevitably, some sellers of healthcare are located in markets which are inherently more competitive than others, due to them having a sufficient numbers of suppliers to be competitive. Thus the identification of the impact of competition is difficult, as location is intertwined with competitiveness. Nevertheless, it was possible for researchers at the CMPO to identify the impact of competition by comparing the difference in quality between those hospitals for which competition was possible and those for which it was not, between years when competition was actively promoted and those when it was not. 'Quality' was measured in terms of death rates from emergency admissions due to heart attack, within 30 days of admission to hospital.

The results showed that hospitals located in more competitive areas had higher death rates during the first part of the 1990s, but that those rates declined somewhat from 1996 onwards. The startling conclusion was that the cumulative impact of competition on death rates was estimated to more or less negate the fall in death rates due to technological innovation, experienced by the whole sector during the 'competitive' period.

Incentives in the public sector: evidence from a government agency

The Government in Britain employs a lot of people - about 3.5 million. The productivity of these workers is therefore a major issue for the economy. Performance-related pay is one way of focusing attention on the Government's priorities, as well as raising effort, but there is a lack of evidence about the impact of performance pay in the public sector. To this end, pilot incentive schemes were introduced in a few government agencies following a report for the Public Services Productivity Panel in 2000. Researchers in the CMPO are working on a quantitative evaluation of these schemes in Jobcentre Plus, Customs and Excise, and the Child Support Agency. Some of this research is still on going, but results from the first of these make interesting reading.

Jobcentre Plus is one of the main government agencies dealing with the public; its role is to place the unemployed in jobs and administer benefits. The incentive scheme in Jobcentre Plus was based on teams, rather than individuals, and focused on five different targets that were measured with varying degrees of precision. Data from the agency's performance management system and personnel records, plus data on each Jobcentre Office's local labour market were used to allow analysis of three issues, the two main ones being:

  • · whether performance pay matters to public service workers;
  • · what the team-based incentive scheme implies.

The results show that the use of performance pay did have a significant effect on the prime target - job placements - but that this response differed between offices and districts. A substantial positive effect was found in small teams, but a negative response in large teams. One of the central concerns was the potential for a 'free ride', where some team members work less hard because the rewards for effort are spread throughout the team, although this can be counter-acted by informal peer pressure from fellow workers.

There are some obvious conclusions: team size needs to be small and preferably not dispersed over many sites, and the connection between effort and output needs to be as clear and as well measured as possible to avoid free-riding. The CMPO's results indicate that the use of incentive pay as a way of inducing greater output would be much more cost-effective than a general pay rise, given the right team size.

The CMPO is jointly funded by the Economic and Social Research Council and the Leverhulme Trust.

Simon Burgess, Carol Propper/Department of Economics


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