Heterogeneity in School Value-Added and the Private Premium (Joint with Natalie Bau, Jishnu Das, and Asim Khwaja) NBER Working Paper 30627
Using rich panel data from Pakistan, we compute test score based measures of quality (School Value-Addeds or SVAs) for more than 800 schools across 112 villages and verify that they are valid and unbiased. With the SVA measures, we then document three striking features of the schooling environment. First, there is substantial within-village variation in quality. The annualized difference in learning between the best and worst performing school in the same village is 0.4 sd; compounded over 5 years of primary schooling, this difference is similar in size to the test score gap between low- and high-income countries. Second, students learn more in private schools (0.15 sd per year on average), but substantial within-sector variation in quality means that the effects of reallocating students from public to private schools can range from -0.35sd to +0.65sd. Thus, there is a range of possible causal estimates of the private premium, a feature of the environment we illustrate using three different identification approaches. Finally, parents appear to recognize and reward SVA in the private sector, but the link between parental demand and SVA is weaker in the public sector. These results have implications for both the measurement of the private premium and how we design and evaluate policies that reallocate children across schools, such as school closures and vouchers.
Crowding in Private Quality: The Equilibrium Effects of
Public Spending in Education (Joint with Natalie Bau, Jishnu Das, Karachiwalla, and Asim Khwaja)
Most children in South Asia can access multiple public and private schools within a 15-minute walk from their house. Consequently, the impact of any policy–even if targeted solely to public schools–may be amplified (or attenuated) through private school responses. We study such spillovers through a village-level randomization in a setting where each village can be regarded as a ”closed-market” with clearly defined market boundaries. The program we evaluate distributed flexible cash grants through school councils to public schools and was conducted entirely by the government without any contact with the research team for four years. After four years, test scores are 0.20sd higher in treated villages, with equal-sized improvements in public and private schools. The improvements in private schools cannot be attributed to differential sorting, entry or exit and are higher in schools that faced greater competitive pressure. We show that excluding private sector responses reduces the cost-effectiveness of the program by 46% and alters the optimal targeting of villages. Finally, improvements are plausibly tied to investments in teachers, with public schools focusing on incentives private schools focusing on qualifications. We conclude that the growth of the private sector and its responsiveness to public sector investments sharply alters the existing calculus around how to improve test scores: Our fundamental insight is that it may be optimal to invest in the public sector precisely because the incentives to improve are stronger in the private sector.
Inducing Positive Selection through Performance Pay: Experimental Evidence from Pakistani Schools (Joint with Christina Brown)
Attracting and retaining high-quality teachers has a large social benefit, but it is challenging for schools to identify good teachers ex-ante. This paper uses teachers’ contract choices and a randomized controlled trial of performance pay with 7,000 teachers in 243 private schools in Pakistan to study whether performance pay affects the composition of teachers. Consistent with adverse selection models, we find that performance pay induces positive sorting: both among teachers with higher latent ability and among those with a more elastic effort response to incentives. Teachers also have better information about these dimensions of type than their principals. Using two additional treatments, we show effects are more pronounced among teachers with better information about their quality and teachers with lower switching costs. Accounting for these sorting effects, the total effect of performance pay on test scores is twice as large as the direct effect on the existing stock of teachers, suggesting that analyses that ignore sorting effects may substantially understate the effects of performance pay.
Subjective versus Objective Incentives and Employee Productivity (Joint with Christina Brown)
A central challenge facing firms is how to incentivize employees. While objective, outputbased incentives may be theoretically ideal, in practice they may lead employees to reduce effort on non-incentivized outcomes and may fail in settings where effort is weakly tied to output. We study the effect of subjective incentives (manager-discretionary performance evaluation) and objective incentives (test score-based) relative to no incentives for teachers using an RCT in 230 Pakistani schools. First, we show that subjective and objective incentives both increase test scores and have similar magnitude effects. However, objective incentives decrease non-test score student outcomes relative to subjective incentives. Second, we show that teachers’ effort response is very different under each scheme, with attendance increasing under subjective and teaching quality decreasing under objective. Finally, we rationalize these effects through the lens of a moral hazard model with multi-tasking. We use within-treatment variation to isolate the causal effect of contract noise and distortion and show that these channels explain most of our reduced form effects.