Teacher responses to incentives [electronic resource] : looking under the hood
Keywords: Education.

Merit pay for teachers is one of the most contentious issues in the K-12 education policy arena. Proponents of merit pay suggest that rewarding teachers for student gains will improve the quality of the teacher workforce. The literature has focused largely on how merit pay affects teacher motivation, and has not investigated the mechanism through which merit pay would change the composition of the teaching force. Presumably, merit pay systems result in highly effective teachers receiving higher pay than ineffective teachers, encouraging the desired pattern of retention and turnover. In addition, it is argued that tying pay to performance will attract new individuals to enter the profession who would not have otherwise done so under the uniform salary scheme, generating a larger pool of teachers from which to hire. These theoretical predictions rest on the basic assumption that highly effective teachers are neutral when it comes to their preferences for uncertain and competitive pay schemes, and are not averse to unequal outcomes among their peers. In my first chapter, I conduct a framed field experiment to investigate how risk aversion, inequity aversion and preferences toward competition differed among highly effective prospective teachers and lawyers. I find that prospective female teachers and lawyers do not differ in their level of risk aversion. However, female teachers had a much stronger aversion to inequity and were less likely to generate a competitive environment than female lawyers that were planning a career in private practice. Interestingly, there were no statistical differences between prospective female teachers and lawyers who planned careers in public practice. In my second chapter, I use unique data that enables us to link teachers' performance-base preferences directly to their effectiveness (as measured by their value-added) and their school performance, to investigate how these effectiveness measures relate to their preferences for competitive bonuses. We find that highly effective teachers are more likely to prefer individual competitive payment schemes over a salary increase. Teachers that work in highly effective schools are also more likely to select a competitive schoolwide bonus over a salary increase for all teachers in their districts. And teachers, on average, are more likely to prefer schoolwide over individual bonuses, especially highly-effective teachers that work in high performing schools. In my last chapter, I use an agent-based model to simulate the system-wide compositional effects resulting from the introduction of performance-based pay in education. This simulation model captures the dynamic processes of workers sorting in and out of teaching once merit pay is implemented. To calibrate important parameters of the model (e.g., teacher preferences), I incorporate what was learned about teacher preferences and motivation in the previous chapters. These results suggest that if teachers and workers outside of teaching maximize their own utility without taking into consideration the payoff of their group of reference, the introduction of merit pay would result in a higher quality teacher workforce. However, once social preferences and internal motivation are incorporated as characteristics of the agents, these potential benefits decline by as much as 70%.