Public Service Quality under Permanent and Fixed-term Employment Contracts: Evidence from Physician Supply of Primary Care

Abstract

AbstractA key feature of public sector employment in many countries is rigid civil service rules that effectively limit manager autonomy over hiring, firing, promotion, and compensation decisions. We study the effect of these rules by comparing the quality of healthcare provided by physicians employed as civil servants with physicians hired in the same facilities on fixed-term contracts that give managers more autonomy over personnel decisions. Using data from interactions with unannounced standardized patients, we find that fixed-term contracts motivate greater diagnostic effort without increasing unnecessary treatments. Lower effort among civil servants appears due to both weaker career and wage incentives.