Competition and Reward Practices: Evidence from Public Schools

Abstract

We examine the relationship between competition and reward practices in the public education sector. We hypothesize and find that school principals who face more intense competition make greater use of performance-based financial rewards and apply greater differentiation in its distribution between higher versus lower performing teachers. However, we do not find similar evidence for nonfinancial rewards. Further analyses suggest that financial rewards help attract and retain teachers in the face of competition. We also hypothesize and find that, as competition intensifies, principals direct incentives toward student outcomes that are easier to measure and communicate (student achievement) as..