As part of Columbia University's Spring 2026 Development Workshop, Maitreesh Ghatak will present "Public Service Delivery, Exclusion, and Externalities" at the Development Seminar.
Abstract:
Many public services use performance incentives to improve provider effort, often in settings where access is priced through user fees. Yet the interaction between incentives and pricing is often ignored. We show theoretically and empirically that incentives to improve service quality can have ambiguous welfare effects. In fee-funded services where fee compliance is imperfect, such incentives can increase quality but also strengthen fee collection, as higher quality raises demand and the returns to monitoring payments, even when nominal fees are fixed. This complementarity—implicit in fee-funded services—can reduce usage and result in negative externalities, revealing a previously overlooked channel in the delivery of public services. We test this mechanism using a large-scale randomized controlled trial among sanitation providers in two large Indian cities. Quality incentives raise both quality and fee compliance, reducing usage and increasing negative health externalities. Our findings underscore the need to align provider incentives with equitable access in more general settings.
