Adding Incentives to Test Scores

From Education Week:

To explore what might happen if students had a little incentive to try harder, a trio of researchers focused on a sample of 2,600 students from 59 schools in seven states who were taking NAEP tests in reading. Within each school, the students were randomly assigned to one of three test-taking conditions. Under the first condition, the seniors were paid $20 at the start of the test-taking session. Another group was offered $5 in advance and $30 at the end of the session if they correctly answered two randomly chosen questions on the test. The control group received no special incentives.

The results of the experiment were posted today in the online version of Teachers College Record. The authors are Boston College’s Henry Braun and Irwin Kirsch and Kentaro Yamamoto of the Educational Testing Service.

Students who were assigned to the second group, earning the $30 bonus at the successful completion of the test, did somewhat better than the first group. Both paid groups outperformed the control group, who received no incentives. These results should surprise nobody. People perform tasks better given tangible rewards. The prospect of $35 outweighs the prospect of “opportunity” simply because money is tangible compared to the more abstract concept of opportunity. But here’s the question: ought school districts pay students to take standardized exams?

To answer this, let’s think back to the discussion over the cost of education. Public school students experience around $7 in subsidized instruction per hour in the classroom, whereas high-end private school students experience around $24 in purchased instruction per hour in the classroom. If public school students want to compete for spots in the Ivies with prep-school students, they need to make their education about three times more valuable (in crudely quantified terms). Students from low-income families have few choices – they either need to be very bright and very determined, or they need to sacrifice a large amount of resources to invest in extra educational opportunities. More often than not, we only see the very bright and very determined students gain the most from the public education system.

But what if state and local governments were to reward high performing students instead of subsidizing their education? Let’s say a standardized exam has 150 questions. At $30 per correct question, it could cost only $4500 to pay a kid to ace the test. This is less than half the $10000 it costs to subsidize that same kid’s education over one school year – an approach which we know leads many to failure.

You might say that replacing school funding with test rewards amounts to sabotage. How can the kids pass the test if nobody teaches them? My answer to that is: those who truly want to earn that $4500 will seek out an education. When that happens, you’ve created an open market, lowering costs, boosting innovation, increasing productivity, and posting gains in educating youth.

Unfortunately, I don’t see this transformation happening soon if at all.

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University Tenure, RIP

From The Chronicle of Higher Education:

What does vanishing tenure mean for higher education? For starters, some observers say that college faculties are being filled with people who may be less willing to speak their minds: contingent instructors, usually working on short-term contracts. Indeed, the American Association of University Professors says instructors need tenure to guarantee that they can say controversial things inside and outside the classroom without being fired.

But others argue that the disappearance of tenure is actually not the worst thing that could happen in academe. The competition to secure a tenure-track job and then earn tenure has become so fierce in some disciplines that academe may actually be turning away highly qualified people who don’t want the hassle. A system without tenure, but one that still gave professors reasonable pay and job security, might draw that talent back.

Ultimately, though, the future of tenure may hinge on a different calculation: Does its absence hurt students enough in the classroom—something research has shown—that the cost savings to institutions are no longer worthwhile?

via Tenure, RIP – Labor & Work-Life Issues – The Chronicle of Higher Education.

(1) I’m not certain if there is any broad danger to free speech in academia. A few high profile cases exist, but they seem much more rare than we might speculate.

(2) I do believe competition will improve all levels of education in the United States. However, other institutional changes must accompany any major change in faculty hiring. Administrators must implement a stable, non-controversial method of evaluating teachers before attempting to reduce tenured faculty. Administrators must bite the bullet too; there ought to be an equivalent evaluation standard for non-instructional staff. Furthermore, schools need to implement broad incentives, making sure successes come with immediate and commensurate rewards.

(3) I don’t believe, prima facie, that reducing tenured faculty harms student achievement. In my personal experience, some of the best teachers I’ve had were not tenured and some of the worse still are. It should be easy to find many instances where a stable tenured faculty harmed student progress – in fact, we know many instances within urban school districts and less-than-Ivy-calibre colleges.

So should tenure die? I don’t think all tenured positions should vanish overnight, and I don’t think any tenured position in a college, primary, or secondary school should get the ax without a careful consideration of other institutional changes (a la (2) above). But neither do I consider tenure indispensable to the educational system.

Salmon on Expensive Home Foreclosures

Exerpt from Felix Salmon (HT: Around the Sphere)

Streitfeld’s piece is bylined Los Altos, California, a town where the median home is $1.5 million. In such towns, you don’t need to be a millionaire to find yourself in a multi-million-dollar home. Let’s say you’re a tech geek who found yourself with $200,000 for a downpayment on a house over the course of the dot-com bubble. So you buy a million-dollar home, and then start up a series of companies. You need to live, of course, and you can’t afford to pay yourself a salary, so you do two or three cash-out refinancings on a home which by 2007 was worth $2.5 million. Before you know it, you’ve got a $2 million mortgage, no way of paying it, and a home which is worth significantly less than the mortgage. Realistically, you have no choice but to default.

Even after accounting for your initial $200,000 downpayment and a series of mortgage-interest payments along the way, you still took out of the house much more money than you put in: the cost of living there over the past 10 years has probably been negative to the tune of well over half a million dollars. Essentially, the house has paid you $50,000 a year — money which is easy to spend, and is now long gone.

In any event, these were jumbo mortgages when they were taken out, and they’re jumbo mortgages now — none of this has anything to do with Fannie or Freddie, except insofar as the homeowning majority of the population might yet wake up and, emulating the rich, default on their underwater homes. And so the GSEs are desperately, and unconvincingly, trying to persuade them not to do so:

Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn’t make it good social policy. That’s because strategic defaults affect many other families and communities. And these costs – or as they are known in economic jargon, externalities – are not factored into the individual borrower’s calculations.

Well, sure, it’s not good social policy to strategically default. Fine. That doesn’t stop the rich, and it shouldn’t stop the rest of us either. I think it’s pretty clear which direction we’re headed in, and moralistic exhortations aren’t going to turn the tide.

Cost Per Student Per Hour

Let’s say it costs a district $10,000 annually to educate one student. Divide that estimate by 180 days per year, divide again by 7 hours of instruction time per day, and we get $7.94. This back-of-the-envelope calculation shows that, for every ten thousand dollars in annual spending per student, a given student will receive, without charge or obligation, a value of $7.94 each hour she attends class. This money – of course – comes from the local taxpayers.

Now, let’s say we look at a high performing private school. I’m arbitrarily choosing Harvard-Westlake in Los Angelos as an example. At HW, tuition and books runs about $31,000 annually. Do the same rough calculation, and we’ll see that a student receives $24.60 worth of instruction each hour of class she attends. (I’m assuming the public school student and the private school student attend class for the same amount of time). All of that money comes from the student’s family.

Here’s my question, as a sometimes naive non-economist: If the public school student experiences a net value of +$7.94 in her education and the private school student experiences a net value of -$24.60 in her education, why does the public school student perform worse in higher-level academics and careers than the private school student? I can ask the question another way: Why does the private school student perform better in higher-level academics and careers if her financial costs are not supplemented?

The question may be naive because, it seems, the financial burden of acquiring an education differs from the personal enrichment of having acquired an education. The two differ qualitatively, even if we could come up with some way to compare them through an arbitrary quantitative benchmark.

Yet I think there may be another issue at hand – and here’s where someone with a strong background in economics can help me out. It seems to me that when a service provides an individual some value at no risk, the individual has trouble redirecting the given value in meaningful ways.

It’s like if I gave someone a dollar who didn’t ask for it. He may be greatful, but, up until that point, he had no plan for using a dollar. He must now decide what to do with the free money, and his decision may end in frivolity – like buying a lottery ticket.

Based on this story, we might observe that public school gives students far more opportunity to gamble with their education than private schooling does. The incentive to learn does not exist, or, the incentive to learn in public school values at -$7.94. For private school students, the incentive is much higher – as high as +$24.60 – depending on how you factor in being “spoiled” or “pampered.”

The Standup Economist Translates Mankiw

Definitions: “Incentives” v “Accountability”

Incentives give individuals reasons to act; usually, people act on certain information that signals a positive contribution to one’s own wellness. An incentive might look like this: If I do X, I will gain Y and Y makes me happy.

Accountability enables the collective to sanction individuals for undesired action. In a way, accountability serves as an inverted incentive: you know a failure to perform certain actions will result in a negative contribution to your wellness, so you try harder to perform accordingly. An accountability measure may look like this: If I fail to do X, I will lose Y and Y makes me happy.

Both incentives and accountability can influence the same set of actions. For instance:

X  ->  Y     Johnny works for a living, Johnny gets paid well.

-X -> -Y    Johnny does not work for a living, Johnny does not get paid well.

Notice the subtle difference. Incentives presuppose that individuals do not already have Y and accountability presupposes that individuals do already have Y. (By “presuppose,” I mean that the conditional holds by strength of the consequent term. We don’t care about the cases in which someone doesn’t act on the incentive or doesn’t care about being held accountable.) Y makes the individual happy; but, insofar as the individual has differing interests in increasing her happiness as opposed to avoiding a decrease in her happiness, she will respond differently to incentives than to accountability measures.

For instance: you might act on my offer to give you a free ounce of milk for each cookie you buy from me, but you might not respond if I threaten to take from you an ounce milk every time you don’t buy a cookie.

So be careful when – in arguing questions of policy – you bring up a point about providing incentives when the issue is over accountability, and visa versa. You may have confused your terms.

Is College Worth the Cost?

There has been much talk about the inflating costs of a college education. I’ve wondered, too, whether the enormous loans students take out for a degree in the liberal arts can be justified. For example, a creative writing major cannot expect to pay-off his debt by solely relying on the muse; he will see a more affordable application of his skills if he goes into a field like marketing – and then we might ask why he didn’t simply acquire an economics degree in the first place.

Notwithstanding the individual choices students make, the collective action behind the student loan industry constrains millions of peoples’ finances. More students apply to college, tuition rates go up, and so the government subsidizes loans, in turn leading more people to apply, raising rates. . . you get the picture. At some point in the cycle, a sizable proportion of individuals will no longer make good on their debt.

And so from these two observations – individual choice and collective action – some have asked whether the cost of college outweighs the benefits to individuals and to society. The answer to that question is an unequivocal yes. But at the same time, people should not respond by not attending college.

The reason for saying students should attend college despite rising costs involves the fact that the demand for college graduate is inelastic: the need for college graduates remains high (see a recent report) without regards to the cost of producing those graduates. From another perspective, more harm can be done by reducing college output than by incurring the costs.

The answer may disappoint some pundits (though not all): we must make our education system more efficient, which is to say, we must reduce the cost of educating our citizens without reducing the overall output of educated citizens. So far, we don’t know how to do that…