Daniel Wiesen¹ (with Jeanette Brosig-Koch², Heike Hennig-Schmidt³, Nadja Kairies-Schwarz², Johanna Kokot⁴)

1 University of Cologne

2 University of Duisburg-Essen

3 University of Bonn

4 Zentralinstitut für die kassenärztliche Versorgung in Deutschland

We present causal evidence on the effect of performance pay on medical service provision from an artefactual field experiment with a representative sample of German resident primary care physicians. In the experiment, we introduce performance pay with two different bonus levels to complement capitation. Performance pay is granted if a health care quality threshold is met. In line with standard theory, we find that performance pay significantly reduces underprovision of medical services, and, on average, it improves the quality of care. The magnitude of these effects depends, however, on the patients’ severity of illness. We also find substantial evidence for crowding-out of patient-regarding behavior under performance pay. Our findings are robust towards variations in the bonus levels. Interestingly, provision behavior in the experiment relates significantly to physicians' annual profits and practice locations.