Abstract
We analyze the causal effect of performance pay on physicians' medical
service provision and the quality of care. To address this effect, which
is difficult to study in the field we conducted an online experiment with
primary care physicians randomly drawn from a representative resident
physician sample in Germany. Linking individual physicians' behavioral
data with administrative data enables us to identify how practice characteristics
account for the heterogeneity in individual physicians' responses to
performance incentives, which field data do not allow in general. We find
that performance pay reduces underprovision of medical care compared to
lump-sum capitation. The effect increases with patients' severities of illness.
Already small incentives are effective in enhancing the quality of
care. Our results further indicate that physicians in high-profit practices
and practicing in cities are most responsive to incentives.
JEL-Classification: I11, C93
Keywords: pay for performance, behavioral experiment, practice characteristics