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Hidden Teacher Effort in Educational Production: Monitoring vs. Merit Pay

  • Christian Jaag

    (University of St. Gallen Institute of Public Finance & Fiscal Law)

This paper deals with the optimality of teacher incentive contracts in the presence of costly or limited government resources. It considers educational production under asymmetric information as a function of teacher effort and class size. In the presence of costly government resources and convex effort costs, teacher monitoring - which is wasteful in principle - may be superior to merit pay in order to induce second-best teacher effort; optimum class size is not affected by informational deficiencies. If the government budget is exogenously fixed, optimum teacher effort may not be affordable, which is shown to make the case for monitoring activity instead of incentive pay even stronger.

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File URL: http://128.118.178.162/eps/hew/papers/0503/0503003.pdf
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Paper provided by EconWPA in its series HEW with number 0503003.

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Length: 24 pages
Date of creation: 18 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwphe:0503003
Note: Type of Document - pdf; pages: 24
Contact details of provider: Web page: http://128.118.178.162

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  19. 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.
  20. Rosenthal, Leslie, 2004. "Do school inspections improve school quality? Ofsted inspections and school examination results in the UK," Economics of Education Review, Elsevier, vol. 23(2), pages 143-151, April.
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