American Economic Journal: Applied Economics Forthcoming (with Katherine Donato, Manoj Mohanan, Yulya Truskinovsky, and Marcos Vera-Hernández)
A central issue in designing incentive contracts is the decision to reward agents’ input use versus outputs. The trade-off between risk and return to innovation in production can also lead agents with varying skill levels to perform differentially under different contracts. We study this issue experimentally, observing and verifying inputs and outputs in Indian maternity care. We find that both contract types achieve comparable reductions in post-partum hemorrhage rates— but payments for outputs were four times that of inputs. Providers with varying qualifications performed equivalently under input incentives, while providers with advanced qualifications may have performed better under output contracts.