Achievement Effects of Individual Performance Incentives in a Teacher Merit Pay Tournament
This paper estimates the effect of the individual incentives teachers face in a teacher-based value-added merit pay tournament on student achievement. We first build an illustrative model in which teachers use proximity to an award threshold to update their information about their own ability, which informs their expected marginal return to effort. The model predicts that those who are closer to an award cutoff in a given year will increase effort and thus will have higher achievement gains in the subsequent year. However, if value-added scores are too noisy, teachers will not respond. Using administrative teacher-student linked data, we test this prediction employing a method akin to the bunching estimator of Saez (2010). Specifically, we examine whether teachers who are proximal to a cutoff in one year exhibit excess gains in test score growth in the next year. Our results show consistent evidence that teachers do not respond to the incentives they face under this program. In line with our model, we argue that a likely reason for the lack of responsiveness is that the value-added measures used to determine awards were too noisy to provide informative feedback about one's ability. This highlights the importance of value-added precision in the design of incentive pay systems.
We would like to thank Gary Solon, Jeffrey Wooldridge and seminar participants at CESifo Economics of Education Conference, Michigan State University, University of Arkansas, University of Michigan, and the APPAM Fall Conference for helpful comments and suggestions. This work was generously supported by the National Academy of Education and the Spencer Foundation, and much of this work was completed while Lovenheim was a NAEd/Spencer Postdoctoral fellow. The research reported here was also supported by the Institute of Education Sciences, U.S. Department of Education, through Grant R305B090011 to Michigan State University. This grant supports MSU’s doctoral training program in the economics of education. The opinions expressed are those of the authors and do not represent views of the Institute or the U.S. Department of Education. We are grateful for the support. We would also like to thank the employees at Houston Independent School District for their help and assistance. This work was done independent of the Houston Independent School District and does not reflect the views of the district or its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Brehm, Margaret & Imberman, Scott A. & Lovenheim, Michael F., 2017. "Achievement effects of individual performance incentives in a teacher merit pay tournament," Labour Economics, Elsevier, vol. 44(C), pages 133-150. citation courtesy of