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Performance Pay and Teachers' Effort, Productivity and Grading Ethics

  • Victor Lavy

Performance-related incentive pay for teachers is being introduced in many countries, but there is little evidence of its effects. This paper evaluates a rank-order tournament among teachers of English, Hebrew, and mathematics in Israel. Teachers were rewarded with cash bonuses for improving their students' performance on high-school matriculation exams. Two identification strategies were used to estimate the program effects, a regression discontinuity design and propensity score matching. The regression discontinuity method exploits both a natural experiment stemming from measurement error in the assignment variable and a sharp discontinuity in the assignment-to-treatment variable. The results suggest that performance incentives have a significant effect on directly affected students with some minor spillover effects on untreated subjects. The improvements appear to derive from changes in teaching methods, after-school teaching, and increased responsiveness to students' needs. No evidence found for teachers' manipulation of test scores. The program appears to have been more cost-effective than school-group cash bonuses or extra instruction time and is as effective as cash bonuses for students.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10622.

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Date of creation: Jul 2004
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Publication status: published as Lavy, Victor. "Performance Pay and Teachers' Effort, Productivity, and Grading Ethics." American Economic Review 99, 5 (2009): 1979-2011.
Handle: RePEc:nbr:nberwo:10622
Note: ED LS
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  1. Victor Lavy, 2004. "Performance Pay and Teachers' Effort, Productivity and Grading Ethics," NBER Working Papers 10622, National Bureau of Economic Research, Inc.
  2. Victor Lavy & Analia Schlosser, 2004. "Targeted Remedial Education for Under-Performing Teenagers: Costs and Benefits," NBER Working Papers 10575, National Bureau of Economic Research, Inc.
  3. Joshua D. Angrist & Victor Lavy, 1999. "Using Maimonides' Rule To Estimate The Effect Of Class Size On Scholastic Achievement," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 533-575, May.
  4. Duflo, Esther & Hanna, Rema & Ryan, Stephen, 2008. "Monitoring Works: Getting Teachers to Come to School," CEPR Discussion Papers 6682, C.E.P.R. Discussion Papers.
  5. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  6. Eric A. Hanushek, 2002. "Publicly Provided Education," NBER Working Papers 8799, National Bureau of Economic Research, Inc.
  7. Emiliana Vegas, 2005. "Incentives to Improve Teaching : Lessons from Latin America," World Bank Publications, The World Bank, number 7265.
  8. Adele Atkinson & Simon Burgess & Bronwyn Croxson & Paul Gregg, 2004. "Evaluating the Impact of Performance-related Pay for Teachers in England," The Centre for Market and Public Organisation 04/113, Department of Economics, University of Bristol, UK.
  9. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  10. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  11. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
  12. Brian A. Jacob & Steven D. Levitt, 2003. "Rotten Apples: An Investigation Of The Prevalence And Predictors Of Teacher Cheating," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 843-877, August.
  13. Green, Jerry & Stokey, Nancy, 1983. "A Comparison of Tournaments and Contracts," Scholarly Articles 3203644, Harvard University Department of Economics.
  14. Angrist, Joshua & Lavy, Victor, 2004. "The Effect of High Stakes High School Achievement Awards: Evidence from a School-Centered Randomized Trial," IZA Discussion Papers 1146, Institute for the Study of Labor (IZA).
  15. Karthik Muralidharan & Venkatesh Sundararaman, 2011. "Teacher Performance Pay: Experimental Evidence from India," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 39 - 77.
  16. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  17. Gaynor, Martin & Pauly, Mark V, 1990. "Compensation and Productive Efficiency of Partnerships: Evidence from Medical Group Practice," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 544-73, June.
  18. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August.
  19. Robert Gibbons, 1998. "Incentives in Organizations," NBER Working Papers 6695, National Bureau of Economic Research, Inc.
  20. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  21. C. Kirabo Jackson, 2010. "A Little Now for a Lot Later: A Look at a Texas Advanced Placement Incentive Program," Journal of Human Resources, University of Wisconsin Press, vol. 45(3).
  22. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
  23. Victor Lavy, 2002. "Evaluating the Effect of Teachers' Group Performance Incentives on Pupil Achievement," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1286-1317, December.
  24. Paul Glewwe & Nauman Ilias & Michael Kremer, 2003. "Teacher Incentives," NBER Working Papers 9671, National Bureau of Economic Research, Inc.
  25. Richards, Craig E. & Sheu, Tian Ming, 1992. "The South Carolina school incentive reward program: A policy analysis," Economics of Education Review, Elsevier, vol. 11(1), pages 71-86, March.
  26. Derek Neal & Diane Whitmore Schanzenbach, 2007. "Left Behind By Design: Proficiency Counts and Test-Based Accountability," NBER Working Papers 13293, National Bureau of Economic Research, Inc.
  27. Caroline M. Hoxby, 2000. "The Effects Of Class Size On Student Achievement: New Evidence From Population Variation," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1239-1285, November.
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