NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Performance Pay and Teachers' Effort, Productivity and Grading Ethics

Victor Lavy

NBER Working Paper No. 10622
Issued in July 2004
NBER Program(s):   ED   LS

Performance-related incentive pay for teachers is being introduced in many countries, but there is little evidence of its effects. This paper evaluates a rank-order tournament among teachers of English, Hebrew, and mathematics in Israel. Teachers were rewarded with cash bonuses for improving their students' performance on high-school matriculation exams. Two identification strategies were used to estimate the program effects, a regression discontinuity design and propensity score matching. The regression discontinuity method exploits both a natural experiment stemming from measurement error in the assignment variable and a sharp discontinuity in the assignment-to-treatment variable. The results suggest that performance incentives have a significant effect on directly affected students with some minor spillover effects on untreated subjects. The improvements appear to derive from changes in teaching methods, after-school teaching, and increased responsiveness to students' needs. No evidence found for teachers' manipulation of test scores. The program appears to have been more cost-effective than school-group cash bonuses or extra instruction time and is as effective as cash bonuses for students.

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Document Object Identifier (DOI): 10.3386/w10622

Published: Lavy, Victor. "Performance Pay and Teachers' Effort, Productivity, and Grading Ethics." American Economic Review 99, 5 (2009): 1979-2011.

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