Paying for Performance: The Effect of Teachers' Financial Incentives on Students' Scholastic Outcomes

Hebrew University Department of Economics Working Paper No. 02-7

46 Pages Posted: 18 Dec 2002

See all articles by Victor Lavy

Victor Lavy

University of Warwick - Department of Economics; Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 22, 2002

Abstract

Performance-related pay for teachers is being introduced in many countries, but there is little evaluation to date on the effects of such programs. This paper evaluates a particular incentive experiment. The incentive program is a rank-order tournament among teachers of English, Hebrew, and mathematics. Teachers were rewarded with cash bonuses for improvements in their students' performance on high-school matriculation exams. Since the schools in the program were not selected at random, the evaluation is based on comparison groups. Three alternative identification strategies are used to estimate the causal effect of the program: a natural experiment stemming from measurement error in the assignment variable, a regression discontinuity method, and propensity score matching. The results of all three methods tell a consistent story: teachers' monetary performance incentives have a significant effect on students' achievements in English and math. No spillover effect on untreated subjects is evident and the general equilibrium impact of the program is positive as well. The program is also more cost-effective than alternative forms of intervention such as extra instruction time and is as effective as cash bonuses for students.

Keywords: financial bonuses, teachers incetives, cognitive achievements

JEL Classification: I2, J0, J2, J3

Suggested Citation

Lavy, Victor, Paying for Performance: The Effect of Teachers' Financial Incentives on Students' Scholastic Outcomes (August 22, 2002). Hebrew University Department of Economics Working Paper No. 02-7. Available at SSRN: https://ssrn.com/abstract=329820 or http://dx.doi.org/10.2139/ssrn.329820

Victor Lavy (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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