The Missing Link: Estimating the Impact of Incentives on Teacher Effort and Instructional Effectiveness Using Teacher Accountability Legislation Data

Teacher effort, a critical component of education production, has been understudied in the literature because of measurement difficulties. I use a principal-agent model, North Carolina data, and the state’s accountability system that awards cash for school-level academic growth to distill effort from teacher absence and capture its effect. I find low effort at low and high probabilities of bonus receipt, high effort when the bonus outcome is in doubt, and free-ridership. Teachers respond to incentives, and effort affects achievement. Policy simulations with individual-level incentives eliminate free-rider effects but reduce effort by pushing teachers into the tails of the probability of bonus receipt distribution.