The Allocation of Incentives in Multi-Layered Organizations

Abstract

Does the allocation of incentives across the hierarchy of an organization matter for its performance? In an experiment with a large public-health organization, we find that healthcare provision is highly affected by how incentives are allocated between front-line workers and their supervisors. Sharing incentives equally between these two layers raises health visits by 61% compared to unilateral allocations, and uniquely improve health service provision and health outcomes. We provide reduced form and structural evidence that effort complementarities and contractual frictions drive these results, and explore the implications for the optimal design of incentive policies in multi-layered organizations.