Dynamic Effects of Teacher Incentive Pay: Evidence from a Rank-Order Tournament in the Houston Public Schools

Michael F. Lovenheim

Teacher incentive pay is growing in popularity in the United States, yet currently little is known about how teachers respond to individual incentives and how these responses translate into achievement in the classroom. This paper identifies how teachers respond to the specific award incentives of a rank-order merit pay tournament enacted by the Houston Independent School District (HISD) called ASPIRE. The ASPIRE program pays teachers based on the quartile of their subject-specific value-added test scores, such that the top quartile teachers receive the largest amount, the second quartile teachers receive less and below-median teachers receive no award. Using teacher-level performance data obtained by special permission from HISD, we will study two distinct questions about how teachers respond to the incentives of the ASPIRE program. Because the tournament uses award cutoffs based on value-added quartiles, teachers closer to cutoffs have higher expected returns from increasing effort than teachers farther away from those cutoffs. Thus, we will examine how subsequent teacher performance reacts to how far teachers are from an award increase. In addition, we will use a regression discontinuity approach around each award cutoff to examine whether there are behavioral effects from winning an award. If it is the case that winning an award impacts subsequent performance, it is suggestive that giving awards throughout the value-added distribution may lead to larger student test score gains. Overall, this will be the first paper in the literature to examine how teachers respond to the specific award incentives of a merit pay system and will advance our understanding of how to structure teacher incentive pay to best promote student academic achievement.

About Michael F. Lovenheim

Michael Lovenheim received his Ph.D. in Economics from the University of Michigan in 2007, where he was a Spencer Pre-doctoral Fellow. After graduate school, he was a Searle Freedom Trust Postdoctoral Scholar at the Stanford Institute for Economic Policy Research (SIEPR) for two years, and he currently is an Assistant Professor in the Department of Policy Analysis and Management at Cornell University. Lovenheim’s research focuses on empirical, policy-oriented questions in the economics of both K-12 and higher education. His work in higher education has explored the role of financial resources in driving institutional outcomes and student enrollment choices as well as identifying quantile treatment effects of college quality on earnings. Lovenheim’s research in K-12 education focuses mostly on teacher labor markets. He has studied the effect of teachers’ unions on school district resources and student outcomes, and his current work analyzes the impact of teacher incentive pay on teacher behavior and student learning in a dynamic setting.