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RAND Looks at Performance-Based Incentives for Public Sector:

Public services such as education, transportation or healthcare are vitally important to all Americans. In these days of tight budgets, legislators at all levels of government are looking for ways of cutting ineffective or inefficient public services as a way to reduce expenditures. Researchers at RAND are exploring if performance–based accountability systems (PBAS) can be an effective way to help improve the effectiveness and efficiency of our nation’s public services.

PBAS link financial or other incentives to measured performance as a means of improving services. One example in the educational arena is the No Child Left Behind Act of 2001 which sanctions schools when student performance on achievement tests don’t improve over time.

RAND researcher, Brian Stecher, discussed the issue at a RAND Issues in Focus meeting on October 25. He noted that in the private sector PBAS type systems are very common. For example, restaurants and hotels receive ratings which are made available to the public. These businesses could either suffer or profit depending on the ratings they receive. However, despite the “popularity of performance systems in other countries” for government services, its use in the public sector in the United States is relatively new. This explains why it hasn’t been studied as much in this country. More attention is now being paid to it because “a number of legislators at the state and federal level are being asked” to include this type of system in their legislation.

Stecher and other researchers have been studying the use of PBAS in education, childcare, healthcare, public health preparedness, and transportation. All of these sectors’ PBAS have three main components, goals, incentives, and a way to measure whether the goals have been achieved.

The RAND research brief on the study stated that the study found effective PBAS should have a goal that is widely shared among stakeholders, has “measures that are unambiguous and easy to observe,” which includes incentives that apply to individuals or organizations, and includes “incentives that are meaningful to those being incentivized.” Finally, sectors with effective PBAS have “adequate resources to design, implement, modify and operate the PBAS.”

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