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

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  • Christian Jaag

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

Abstract

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.

Suggested Citation

  • Christian Jaag, 2005. "Hidden Teacher Effort in Educational Production: Monitoring vs. Merit Pay," HEW 0503003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwphe:0503003
    Note: Type of Document - pdf; pages: 24
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/hew/papers/0503/0503003.pdf
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    References listed on IDEAS

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    1. Jaag, Christian, 2006. "Teacher Incentives," MPRA Paper 340, University Library of Munich, Germany.

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    More about this item

    Keywords

    Education; Moral Hazard; Monitoring; Merit Pay; Incentives; Teachers;
    All these keywords.

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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