Evaluating the Effect of Teachers’ Performance Incentives on Pupils’ Achievements

Proposals to use teachers’ performance incentives as the basis for school reforms have recently attracted considerable attention and support among researchers and policy makers. The main message is that the most likely way to improve students’ achievements is to institute performance incentives, direct monetary rewards for improvements in student outcomes. However, there has been very little experience with applying performance incentives in schools. This paper provides empirical evidence on the causal effect of a program that offered monetary incentives to teachers as a function of their students’ achievements. The program offered incentives to schools in the form of performance awards, part of which were distributed to teachers and school staff as merit pay and the rest, for the well-being of teachers in the school. I evaluate the effect of the program during the first two full academic years of its implementation, 1996 and 1997. Since participating schools were not chosen randomly, the issue of identification is central to the empirical strategy. The second part of the paper evaluates the effect of a ‘twin’ program, implemented simultaneously and with the same objectives as the incentive program, but in different schools, and based on providing additional resources to schools. The paper compares the effect and cost of the two alternative intervention strategies and draws policy implications. Victor Lavy Department of Economics, Hebrew University Mt. Scopus, Jerusalem 91905, Israel [email protected] * I owe special thanks to the staff at the Ministry of Education for providing and assisting with the data used in this study, and to J. Angrist, D. Genesove, C. Manski and S. Pischke for helpful comments and discussions. I also benefited from comments and suggestions of seminar participants at Harvard, MIT, The Hebrew University and The World Bank. Special thanks to Analia Schlosser for her excellent research assistance. The author bears sole responsibility for the contents of this paper. It does not reflect the views of the Government of Israel or those of any of its agencies or employees.