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Working paper 696

Hugh Macartney, Robert McMillan, Uros Petronijevic, "A Quantitative Framework for Analyzing the Distributional Effects of Incentive Schemes", 2021-05-11
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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.

Keywords: Incentives, Effort, Accountability Scheme, Education Production, Test Score Distribution, Inequality, Conditional Average Treatment Effect, Semi-Parametric, Counterfactual, Education Reform

JEL Classification: D82; I21; J33; M52