A Quantitative Framework for Analyzing the Distributional Effects of Incentive Schemes
72 Pages Posted: 17 May 2021 Last revised: 26 Sep 2022
Date Written: May 2021
This paper develops the first quantitative framework for analyzing distributional effects of incentive schemes in public education. The analysis is built around a hump-shaped effort function, estimated semi-parametrically using exogenous incentive variation and rich administrative data. We identify key primitives that rationalize this effort function by estimating a flexible teacher effort-choice model. Both the model and parameter estimates are necessary components in our counterfactual framework for tracing the effects of alternative accountability systems on the entire test score distribution, with effort adjusting endogenously. We find widespread schemes that set a fixed target for all students give rise to a steep performance-inequality tradeoff. Further, counterfactual incentive policies can outperform existing schemes for the same cost — reducing the black-white test score gap by 7% (via student-specific bonuses), and lowering test-score inequality across students by 90% (via student-specific targets). Our quantitative approach opens up new possibilities for incentive design in practice.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Suggested Citation: Suggested Citation