Incentive Pay and Social Returns to Worker Effort in Public Programs: Evidence from the Weatherization Assistance Program
Aligning compensation with recipient outcomes has the potential to improve the efficiency of government programs. We perform a field experiment to evaluate the impact of performance bonuses on the returns to spending in a large low-income energy efficiency assistance program. We find that performance-based bonuses dramatically increased program natural gas savings by 24%. The bonuses generate $5.39-$14.53 in social benefits for every dollar invested and increase the social net benefits from home-level weatherization more than two-fold. Contractors performing at high quality at baseline respond disproportionately to the incentives, suggesting that gains in the program's cost-effectiveness result from more efficient allocation of worker effort across workers who differ in their marginal effort cost. We do not find evidence of learning within the two-year study period or of increased deficiencies among non-incentivized tasks.
We are indebted Mick Prince, Chad Wolfe, the PRISM Climate Group for assistance with data and experimental implementation. We thank Bryan Parthum, Tengjio Chen, Hansen Shao, and Mateus Souza for excellent research assistance. We received excellent feedback and comments from Hunt Alcott, Meredith Fowlie, Nathan Hendren, Matt Kahn, Kelsey Jack, Rob Metcalfe, Dave Rapson, Rich Sweeney and seminar participants at the CU Environmental and Resource Economics Workshop, the Dallas Fed, UC Berkeley's Electricity Camp, Georgia State University, the Kelley School of Business, Michigan State University, the Online Agricultural and Resource Economics Seminar (OARES), UC Santa Barbara, the Heartland Workshop, the University of Pennsylvania, the Urban Economics Association meeting, and UC San Diego. We acknowledge generous support from the Alfred P. Sloan foundation and the Illinois Department of Commerce and Economic Opportunity’s Illinois Home Weatherization Assistance Program. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- In a program designed to save energy by promoting home weatherization among low-income households, compensating contractors based on...