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# **Effects of contracts on health worker selection**

Finally, we explore the effects of contract choice on the ability and pro-poor preferences of health care workers. We randomly assigned 100 health workers to a treatment that allowed them to choose between two extreme types of contracts: (a) a flat contract (salary) of 4,000 CFA, or (b) a variable pay contract (case piece rate) of 650 CFA per case. They then engaged in the virtual clinic task under the contractual regime that they had selected.

To earn the same amount under the variable pay contract as under the flat salary contract, health workers would need to see 6.15 cases on average. As poor cases take longer to treat, we would therefore expect that workers with strong pro-poor preferences would be less likely to select the variable pay contract: the variable contract imposes a tax on their pro-poor choices that the flat salary contract does not. Furthermore, workers who take longer in the ability round should be less likely to choose the variable pay contract, since their expected earnings are higher under the flat pay contract.

Table 4 presents results from logit regressions for the likelihood of selecting the variable pay contract. Overall, 81 percent of the sample selected the variable pay contract. Model 1 controls for pro-poor preferences, while model 2 includes controls for ability in terms of the score in the ability round, and time taken in the ability round. Model 3 adds variables for occupation, while model 4 includes demographic controls (age, gender, monthly income, and current state of wealth); and experiment-specific controls (confidence that schools are paid in line with the instructions, and task motivation for the virtual clinic task.

Two clear results stand out. First, more pro-poor individuals are significantly less likely to select the variable pay contract ( _p<0.05_ ): workers who allocated their entire donation to the poor school are 21 percentage points less likely to choose the variable pay contract compared to workers who allocated their entire donation to the non-poor school (based on marginal effects). Ability also affects contract choice. Health workers who took longer in the ability round were significantly less likely to choose the variable pay contract ( _p<0.01_ ). For each additional minute health workers spent in the ability round, they were one percentage point less likely to choose variable pay. Similarly, those with higher scores in the ability round were more likely to select the variable pay contract ( _p<0.01_ ). For each additional correct response in the ability round, health workers were 4.8 percentage points more likely to choose the variable pay contract.<sup>10</sup> Variable pay contracts attract workers who are less pro-poor, but of higher ability. These results underscore the difficulty of attracting and retaining the ideal profile of workers. The more able (and task motivated) select into the variable contract, but those who have preferences for the poor are more likely to select into the flat salary contract. Performance pay may well attract high ability workers, but at the cost of those with equity-enhancing preferences, exacerbating inequality concerns. Future research should examine the actual effort consequences of the selection effects of contract type.<sup>11</sup> 10 Those who reported greater task motivation were also more likely to choose the variable pay contract, which we conjecture is driven by the preferences of the task-motivated to undertake more cases, a tendency that is more highly compensated under the variable pay contract.

> 11 The treatment was sufficiently powered to identify selection effects of contract type, but the number of subjects was too low to detect the output differences caused by selection effects.  Health workers who chose the variable pay contract