Fair Ranking of Teachers

Economic theory suggests that it is optimal to reward teachers depending on therelative performance of their students. We develop an econometric approach, based onstochastic frontier analysis, to construct a fair ranking that accounts for the socio-economicbackground of students and schools and the imprecision inherent in achievement data. UsingGerman PIRLS (IGLU) data, we exploit the hierarchical structure of the data to estimate theefficiency of each teacher. A parsimonious set of control variables suffices to get a "fair"estimate of unobserved teacher quality. A Hausman-Taylor type estimator is the preferredestimator because teacher efficiency and some exogenous variables may be correlated...