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Abstract: We present an estimable framework expressing teacher value-added in terms of teacher ability and effort, along with a strategy to identify these two unobserved inputs and their distinct test score effects for the first time. This uses exogenous incentive policy variation and rich longitudinal data from North Carolina. We find both inputs raise current and future scores, and effort responds systematically to incentives, underlining the agency of the teaching force. To explore the policy implications of this agency, we use our estimates to compare the cost effectiveness of incentive and ability-based education reforms, finding incentive reforms often come out ahead.
Keywords: Incentives, Education Production, Effort, Ability, Teacher Value- Added, Accountability, Education Policy, Cost-Effectiveness, Persistence
JEL Classification: I21, J24, M52