The Complementarity of Incentive Policies in Education: Evidence from New York City

Many production activities require cooperation between agents in an organization, and incentive alignment may take advantage of complementarities in such activities. This paper investigates such a possibility by examining two education policies that were implemented in New York City: a grade retention policy that incentivizes students and an accountability scheme that incentivizes schools. I employ doubleand triple-difference strategies to estimate the individual and combined effects of these policies. The policies alone appear to have generated either modest or insignificant improvements in student outcomes. Combined, however, the retention and accountability policies led to a substantial increase in math test scores and reductions in student absences and suspension rates; the effect on English test scores is positive but not robust. These results underscore the value of using incentive alignment to realize complementarities in organizations. ∗Department of Economics, Columbia University. Email: [email protected]. †I am deeply grateful to Bentley MacLeod, Jonah Rockoff, and Miguel Urquiola for their comments and encouragement. I also thank Peter Bergman, Michael Best, George Bulman, Alex Eble, Michael Gilraine, Rucker Johnson, Wojciech Kopczuk, Robert McMillan, Randall Reback, Evan Riehl, Miikka Rokkanen, Norbert Schady, Elizabeth Setren, Mandy Shen, Ludger Woessmann, and participants of the Columbia Applied Microeconomics Colloquium for helpful discussions. All errors are my own.