Incentives James Habyarimana Impact Evaluation Initiative World Bank

Incentives in Education Fashionable avenue for improving school performance – raising school, teacher and student effort Essentially involves tying remuneration to behavior or outcomes – Performance-based awards Has become a major ingredient in education reform in recent years – School-based performance grants/awards – Conditional cash transfers/scholarships – Contract teachers and performance bonuses Concern that we do not crowd out intrinsic motivation

Examples of Incentives-targeting learning Teacher incentives – Kenya (group) – India (group & individual) Based on performance of pupils in externally administered tests Contract teachers – India – Rwanda – Kenya Contract renewable conditional on performance Teacher ladders (Schemes of service) – Mexico – Uganda (under consideration)

Other Incentives-paying for inputs Camera project – India Number of complete days worked Lottery in up-state New York – Share of winnings depends on the number of sick- days not taken

Who mediates these incentives What determines the performance-related remuneration? How and who measures performance How much discretion do mediators have in determining eligibility? – Too much discretion and ‘corruption’ attenuates incentives Example of a mediated incentives program – Teacher attendance program in Western Kenya

Mediated Incentives: Who monitors the monitor? Kenya Kremer & Chen (2001) Head teachers asked to monitor presence of pre- primary school teachers Prize of a bicycle if attendance sufficiently high – Large incentive? Verified attendance with un-announced visits – No difference between program and comparison schools – Evidence of ‘cheating’ Collusion, altruism e.t.c

School Performance Awards Nigeria (Lagos State?) Chile (SNED 1998-) Within each homogenous group, the top n schools that account for 25% of enrollment are selected Award is based on six sub-indices – Test score levels (37) – Test score growth (28) – Equality of opportunity (22) – School initiatives (6) – Parental involvement (5) – Working Conditions (2)

School Performance Awards Chile SNED Program Selected schools receive an excellence subsidy – 90% is divided among teachers (based on instruction time) Annual benefit to winning teachers is about half a monthly salary (4-7% salary increase) – Remaining 10% can be used at school’s discretion. Public announcement of school’s quality

Student based awards Conditional cash transfers – Can be used for attendance – Student effort and performance Scholarships are really conditional transfers – PROGRESA – Washington DC Paying for performance – Up to $100 per month per student » For good behavior, attendance and performance – Also in NYC, Baltimore and other school districts

Rewards for Performance Classic knee-jerk reaction of your typical economist Some caution in design of high-powered incentives warranted – People don’t like the inherent assumption that they are lazy – If output multi-dimensional then can generate very inefficient allocation of effort – Test scores easy to measure, creativity harder

COST EFFECTIVENESS ANALYSIS

CBA or CEA? In general two ways to determine the desirability of programs – Cost Benefit Analysis – Cost Effectiveness Analysis Cost Benefit Analysis – Compares all the net benefits of a policy, program, project to the net costs. Cost Effectiveness Analysis – Cost per unit of output achieved by program

Cost Benefit Analysis Typically used for large macro policies or programs All social ‘costs’ and ‘benefits’ must be assigned a monetary value – For instance noise, teacher or parent satisfaction – Costs of funding – taxes Need to convert the stream of benefits, costs into a $ equivalent today Typically involves double counting – Costs of teacher incentives are also benefits to teachers

Cost Effectiveness Analysis Typically used for program activities Measures the financial costs of producing a specific outcome Generally more appropriate for IE – Short term gains observed No double counting Allows us to compare different programs, processes targeting same outcome

CEA Example Suppose we want to increase girls participation in school through CCTs But don’t know whether the monthly transfer should be $X or $X+Δ Then can conduct a prospective IE in which eligible pupils in group A receive $X and those in group B receive $X+Δ Compute the impact of each intervention Compare cost effectiveness of treatment A vs B $(Overhead A + X)/Impact A vs $(Overhead A + X+ Δ)/Impact B