Throughout the world, healthcare policy makers confront common problems: expenditure inflation, inefficiency and inequity in access to care. The development of health economics during the last 20 years has produced a consensus (outside the USA) about the merits of ‘single-payer’ systems and the need to evaluate the cost-effectiveness of competing medical technologies. These are necessary but not sufficient conditions for expenditure control and efficient rationing (Williams, 1972; Reinhardt, 1982; Hsiao, 2011; Maynard, 1997; Culyer and Rawlins, 2004). Recent reforms have had a modest effect on the efficiency of resource allocation in health care. Exacerbated by the global economic downturn, the desire for more radical improvements in efficiency has led to increased interest amongst policy makers in a vigorous payment-for-performance (P4P) culture based principally on the belief that financial incentives are efficient ways of mitigating variations in clinical practice and ensuring the delivery of conservative, cost-effective interventions. The failure of public and private healthcare markets to deliver patient care efficiently, equitably and within budgets has a long history. This is reviewed in the next section and followed by a discussion of case studies of P4P, primarily in the context of healthcare provision. A selective use of this literature is used to draw out a list of central research questions to be addressed by the rapidly evolving P4P initiatives.