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Hidden Teacher Effort in Educational Production: Monitoring vs. Merit Pay

Christian Jaag ()

HEW from EconWPA

Abstract: This paper deals with the optimality of teacher incentive contracts in the presence of costly or limited government resources. It considers educational production under asymmetric information as a function of teacher effort and class size. In the presence of costly government resources and convex effort costs, teacher monitoring - which is wasteful in principle - may be superior to merit pay in order to induce second-best teacher effort; optimum class size is not affected by informational deficiencies. If the government budget is exogenously fixed, optimum teacher effort may not be affordable, which is shown to make the case for monitoring activity instead of incentive pay even stronger.

Keywords: Education; Moral Hazard; Monitoring; Merit Pay; Incentives; Teachers (search for similar items in EconPapers)
JEL-codes: I21 I28 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu and nep-hpe
Date: 2005-03-18
Note: Type of Document - pdf; pages: 24
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwphe:0503003

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