Education Next – Derek Neal
“This year, Bengt Holmstrom received the Nobel Prize in Economics for his work on contract theory. Holmstrom does not work on education per se, but he has spent much of his career writing about the use of incentive contracts in settings where worker actions are hard to observe and worker output is difficult to quantify, e.g. educators in schools. We live in an information age, and for decades we have seen organizations employ new measurement technologies and create new performance metrics for workers, teams, or organizations. Many non-economists assume that economists believe that more performance metrics and more performance pay always mean more efficiency. However, Holmstrom’s work teaches us that the world is not so simple. The details of performance pay schemes matter, and new incentive schemes built around new performance metrics do not always improve performance.”(more)