A Quantitative Framework for Analyzing the Distributional Effects of Incentive Schemes

72 Pages Posted: 17 May 2021 Last revised: 26 Sep 2022

See all articles by Hugh Macartney

Hugh Macartney

Duke University - Department of Economics

Robert McMillan

University of Toronto - Department of Economics

Uros Petronijevic

New York University (NYU) - Department of Economics

Date Written: May 2021

Abstract

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.

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Suggested Citation

Macartney, Hugh and McMillan, Robert and Petronijevic, Uros, A Quantitative Framework for Analyzing the Distributional Effects of Incentive Schemes (May 2021). NBER Working Paper No. w28816, Available at SSRN: https://ssrn.com/abstract=3847561

Hugh Macartney (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Robert McMillan

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4190 (Phone)
416-978-6713 (Fax)

Uros Petronijevic

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

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