Teacher Incentives

This paper considers hidden teacher effort in educational production and discusses the implications of multiple teacher effort dimensions on optimum incentive contracts in a theoretical framework. The analysis of educational production in a multitask framework is a new and unique contribution of this paper to the economics of education. We first characterize the first-best and second-best outcomes. The model is extended to address specific questions concerning teacher incentive schemes: We compare input- to output-based accountability measures and study the implication of the level of aggregation in performance measures. Against the background of the empirical evidence on the effectiveness of teacher incentives, we argue that performance measures should be as broad as possible. Further, we present the optimum contract for motivated teachers. Finally, if education is produced in teacher teams, we establish the conditions for optimum team-based and individual incentives: The larger the spillover effects across teacher efforts and the better the measurability of educational achievement, the stronger the case for team-based incentives

A Simple Model of Educational Production

There is a large body of literature on the effect of educational resources on student performance, such as teacher qualification, class size, and physical resources in school. It is dominated by empirical studies which often find ambiguous effects of resource spending on student outcomes. The unique contribution of this paper is the provision of a framework to study educational production with differentiated input factors, which allows for closedform solutions. We try to interpret the empirical findings on the basis of a simple theoretical model of educational production: Class size, employed school resources and student effort are endogenously determined in order to account for differences in educational achievement. We also discuss the choice of integrated vs. segregated classes. Optimum class size and school quality increase with higher discipline, while in equilibrium overall classroom disruption is equal in all classes

Entry Deterrence and the Calculation of the Net Cost of Universal Service Obligations

This paper relates to the current discussion about how to measure the net cost and unfair burden of universal service provision in network industries. The established profitability cost approach compares the profit of a universal service provider (USP) with and without a universal service obligation (USO). This paper argues that the net cost of universal service provision critically depends on the regulatory counterfactual and hence the USP’s strategy space without USO. A strong USO invites competition by limiting the USP’s means to position itself in the market and by thereby offering cream-skimming opportunities. On the other hand, a simple game-theoretic entry analysis shows that the USO may effectively serve as a valuable strategic commitment device to deter entry and hence may be valuable to the USP despite causing inefficient production. From a policy perspective, this constitutes a counter-intuitive result for the definition of the USO: The stricter it is regulated, the more detrimental it may be to competition and therefore the smaller is its burden on the USP.Universal service obligation, Postal sector, Net cost

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

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.Education, Moral Hazard, Monitoring, Merit Pay, Incentives, Teachers

Liberalization of the Swiss Letter Market and the Viability of Universal Service Obligations

We discuss the ongoing liberalization process in the market for addressed letter mail in Switzerland. The core of the paper is an assessment of the liberalization's impact on the financial viability of various universal service obligations with and without access to the incumbent's downstream delivery network for customers and competitors. We propose a simple calibrated model of the Swiss letter market offering theoretical insights into the mechanics of market opening along with quantitative conclusions bearing direct policy relevance. The extent of the entrants' market coverage and the equilibrium in the resulting price competition are endogenously determined. Our simulations suggest caution in introducing full market opening. For the scenarios considered, the model shows that either the burden of the USO must be reduced (e.g. with respect to the frequency and the coverage of delivery and / or through price differentiation). Alternatively, other means of assuring financial stability of Swiss Post must be sought, be it through external funds or demand stimulation through new producs, possibly in the worksharing domain.Liberalization, Mail, Universal Service Obligation

Compensating the Net Cost of Universal Postal Services

This paper analyzes the net cost of universal service obligations in the postal sector after full liberalization and the potential burden they represent for the universal service provider. It considers various interpretations of what an ‚unfair burden. might be and discusses the competitive impact of corresponding compensation scenarios by means of a stylized theoretical model with endogenous entry and coverage decisions.Universal service obligation, Unfair burden, Postal sector

Innovation in the Swiss mail sector: deregulation versus liberalization

In this paper we discuss an incumbent postal operator’s incentives to invest in an innovation in the face of upcoming liberalization and deregulation of the letter market. Our contribution is a short description of recent innovations in the Swiss mail market and their interpretation in light of an illuminative yet tractable model. Following the literature, we distinguish between product and process innovation. We characterize competitive pressure by a reduction in the incumbent’s market share and an increase of his/her perceived price elasticity of demand due to consumers’ switching to competitors. This may result in adverse incentives to invest in an innovation. Likewise, deregulation leads to increased entrepreneurial freedom on the operator’s side and possibly a lower burden of USO (universal service obligations), reflected in lower cost. This sustains incentives to invest in both product and process innovation.post, liberalization, privatization, regulation

A Simple Model of Educational Production

There is a large body of literature on the effect of educational resources on student performance, such as teacher qualification, class size, and physical resources in school. It is dominated by empirical studies which often find ambiguous effects of resource spending on student outcomes. The unique contribution of this paper is the provision of a framework to study educational production with differentiated input factors, which allows for closedform solutions. We try to interpret the empirical findings on the basis of a simple theoretical model of educational production: Class size, employed school resources and student effort are endogenously determined in order to account for differences in educational achievement. We also discuss the choice of integrated vs. segregated classes. Optimum class size and school quality increase with higher discipline, while in equilibrium overall classroom disruption is equal in all classes.Schools; Education; Educational Production

School Competition

This paper considers the influence of spatial competition on education and its effect on students' school choice and educational achievement by explicitely modeling educational production and the students' participation decision. Education at school is a function of teacher effort and class size. Students decide which school to attend on the basis of an assessment of the associated costs and prospective benefits from doing so. We analyze how competition between schools affects equilibrium resource spending and school diversity as well as the level and distribution of student attainment and welfare. The consideration of spatial aspects of school choice without recourse to vertical differentiation is a unique contribution of this paper. We argue that schools in metropolitan areas with short ways to school and many potential students face fiercer competition which increases school productivity and student performance. This result confirms the findings in Hoxby (2000). Overall learning time in school is constant in the probability that students behave well if students are segregated by type. However, better behaved students have a higher achievement due to higher optimum resource spending. Finally, we support our argument by an empirical analysis of student performance in various matura schools in Switzerland.Schools; Education; Competition

The future of the USO - Economic rationale for universal services and implications for a future-oriented USO

Universal service obligations (USO) in the postal sector currently enjoy considerable attention among politicians, practitioners and academics. The primary areas of interest have been the viability, costing and funding of the USO in a completely liberalized market. However, the purpose and the scope of the USO itself have so far not been questioned fundamentally. In this paper we first analyze the possible rationale for USO from an economic point of view. Then, we discuss the impact of converging postal and telecommunications markets on potential alternative means to provide USO in a more efficient way.Universal service, USO, covergence, postal sector