All local transport authorities in England have, since 2000, been obliged to submit 5-year plans for local transport. The plans set out the overall strategy, key policies that will be implemented and how the strategy will be resourced. The central government now adjusts the funding allocations up or down by up to 25% based on the quality of the plans and, on an on-going basis, achievement against the targets proposed in these plans. This paper presents a theoretical and practical assessment of the impacts of these incentives on local authority performance. The research has employed a mixed-methods approach with interviews, questionnaires, the development of a game theoretic representation of the process and a laboratory experiment. The findings have been discussed with practitioners. The research suggests that the presence of performance rewards, in a scheme where authorities believe they have a reasonable chance of being rewarded, leads to authorities setting more ambitious targets. Whilst it is not certain that these targets will be met it appears that the absolute outcomes achieved are likely to be better than they otherwise would have been. Generic conclusions are drawn about the conditions under which target-based performance reward schemes will work best.