Working Paper: NBER ID: w20321
Authors: Thomas Ahn; Jacob L. Vigdor
Abstract: When economic agents make decisions on the basis of an information set containing both a continuous variable and a discrete signal based on that variable, theory suggests that the signal should have no bearing on behavior conditional on the variable itself. Numerous empirical studies, many based on the regression discontinuity design, have contradicted this basic prediction. We propose two models of behavior capable of rationalizing this observed behavior, one based on information acquisition costs and a second on learning and imperfect information. Using data on school responses to discrete signals embedded in North Carolina's school accountability system, we find patterns of results inconsistent with the first model but consistent with the second. These results imply that rational responses to policy interventions may take time to emerge; consequently evaluations based on short-term data may understate treatment effects.
Keywords: Incentives; Educational Accountability; Regression Discontinuity
JEL Codes: D03; I2; J33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| evaluations based on short-term data (C41) | may understate treatment effects (C32) |
| introduction of discrete signals based on a continuous measure (the composite growth index) (C43) | significant improvements in school performance for those just below the bonus threshold (D29) |
| schools receiving a bonus (M52) | higher test score gains compared to those that barely missed the threshold (C52) |
| schools just below the bonus threshold (M52) | improve their performance relative to those just above it (D29) |
| inexperienced principals and inconsistent performance histories (D29) | more pronounced effect from the bonus (M52) |