Saturday, April 23, 2005

Moral hazards make moral-hazarders better off?
Not always.

Suppose you're a teacher. Suppose there is a change in policy and your students are graded for the course based on how they perform on a standardized exam. Nothing is said, but being a wise teacher, you anticipate that the administration (or a new administration) will later (1) come to the realization that how your students do on the standardized exam says something about your teaching performance, and (2) use these results to rank you and your fellow teachers for merit pay or promotion.

We are in a setting where there will be "post contractual opportunism." Recognizing your incentives, you begin to do what it takes for your students to do well on the standardized exam. This is unlikely to be in line with what is best for learning. Indeed, it may be worse for learning than the environment where there is no standardized testing.

And you, too, would likely be worse off than if the moral hazard had never been created by the administration. Because teaching the to the test is no fun and does not call upon your inspiration and creativity. Except the pedestrian inspiration and creativity of beating the rules.


Blogger EclectEcon said...

And yet, if I were a principal in this principal-agent problem, and IF the standardized tests could test whether students learned the things I wanted them to learn, then I would hope for exactly this result [teachers teachng to the exam]. You might call it moral hazard, but I prefer to think of it as incentive-compatibility restructuring.

2:46 PM  

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