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Contracting for Educational Achievement

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  • Maria Marta Ferreyra

    (Carnegie Mellon University)

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    Abstract

    We argue that the lack of academic proficiency in K-12 education is due to information asymmetry between the policy-maker, households, and schools. The policy-maker is thus unable to write down efficient contracts to ensure proficiency, and must incur agency costs which, in turn, generate other distortions. We develop a theoretical equilibrium model where schools and households choose their efforts in response to the policy-maker’s incentives. We model public schools as one possible response to informational failures. Unlike private schools, public schools separate the roles of financing and consuming education, thus creating rents for public schools. We develop a computational version of the model that allows us to illustrate the distortions and effects from alternative contracts.

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 850.

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    Date of creation: 2009
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    Handle: RePEc:red:sed009:850

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    1. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
    2. Rajashri Chakrabarti, 2007. "Can increasing private school participation and monetary loss in a voucher program affect public school performance? Evidence from Milwaukee," Staff Reports 300, Federal Reserve Bank of New York.
    3. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    4. Huddart, Steven & Liang, Pierre Jinghong, 2005. "Profit sharing and monitoring in partnerships," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 153-187, December.
    5. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
    6. Steven Huddart & Pierre Jinghong Liang, 2003. "Accounting in Partnerships," American Economic Review, American Economic Association, vol. 93(2), pages 410-414, May.
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