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A Quantitative Framework for Analyzing the Distributional Effects of Incentive Schemes

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  • Hugh Macartney
  • Robert McMillan
  • Uros Petronijevic

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.

Suggested Citation

  • Hugh Macartney & Robert McMillan & Uros Petronijevic, 2021. "A Quantitative Framework for Analyzing the Distributional Effects of Incentive Schemes," Working Papers tecipa-696, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-696
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    References listed on IDEAS

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    1. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 917-962.
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    3. Esther Duflo & Pascaline Dupas & Michael Kremer, 2011. "Peer Effects, Teacher Incentives, and the Impact of Tracking: Evidence from a Randomized Evaluation in Kenya," American Economic Review, American Economic Association, vol. 101(5), pages 1739-1774, August.
    4. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2007. "Incentives for Managers and Inequality among Workers: Evidence from a Firm-Level Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 729-773.
    5. Randall Reback & Julie Berry Cullen, 2006. "Tinkering toward accolades: School gaming under a performance accountability system," Working Papers 0601, Barnard College, Department of Economics.
    6. Simon Burgess & Carol Propper & Helen Slater & Deborah Wilson, 2005. "Who wins and who loses from school accountability? The distribution of educational gain in English secondary schools," The Centre for Market and Public Organisation 05/128, The Centre for Market and Public Organisation, University of Bristol, UK.
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    Cited by:

    1. Evan Riehl & Meredith Welch, 2023. "Accountability, Test Prep Incentives, and the Design of Math and English Exams," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 42(1), pages 60-96, January.

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    More about this item

    Keywords

    Incentives; Effort; Accountability Scheme; Education Production; Test Score Distribution; Inequality; Conditional Average Treatment Effect; Semi-Parametric; Counterfactual; Education Reform;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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