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This paper presents a model of educational production that tries to make sense of recent evidence on effects of institutional arrangements on student performance. In a simple principal-agent framework, students choose their learning effort to maximize their net benefits, while the government chooses educational spending to maximize its net benefits. In the jointly determined equilibrium, schooling quality is shown to depend on several institutionally determined parameters. The impact on student performance of institutions such as central examinations, centralization versus school autonomy, teachers' influence, parental influence, and competition from private schools is analyzed. Furthermore, the model can rationalize why positive resource effects may be lacking in educational production. Institutional Effects in a Simple Model of Educational Production AbstractThe paper presents a model of educational production which tries to make sense of recent evidence on effects of institutional arrangements on student performance. In a simple principal-agent framework, students choose their learning effort to maximize their net benefits, while the government chooses educational spending to maximize its net benefits. In the jointly determined equilibrium, schooling quality is shown to depend on several institutionally determined parameters. The impact on student performance of institutions such as central examinations, centralization versus school autonomy, teachers' influence, parental influence, and competition from private schools is analyzed. Furthermore, the model can rationalize why positive resource effects may be lacking in educational production.JEL Classification: I20, L32, H52

Abstract[Excerpt] Educational reformers and most of the American public believe that most teachers ask too little of their pupils. These low expectations, they believe, result in watered down curricula and a tolerance of mediocre teaching and inappropriate student behavior. The result is that the prophecy of low achievement becomes self-fulfilling. Although research has shown that learning gains are substantially larger when students take more demanding courses2, only a minority of students enroll in these courses. There are several reasons for this. Guidance counselors in many schools allow only a select few into the most challenging courses. While most schools give students and parents the authority to overturn counselor recommendations, many families are unaware they have that power or are intimidated by the counselor's prediction of failure in the tougher class. As one student put it: "African-American parents, they settle for less, not knowing they can get more for their students. " This paper has not undergone formal review or approval of the faculty of the ILR School. It is intended to make results of Center research available to others interested in preliminary form to encourage discussion and suggestions. The Role of End-of-Course ExamsWorking Paper 00-09 Page 2Let us send a signal out to the world that the days of undereducating our young people, the days of underestimating our young people are over.--Hugh Price, President of the National Urban League, quoted in Education Week., July 14, 1999 1 I. THE PROBLEMEducational reformers and most of the American public believe that most teachers ask too little of their pupils. These low expectations, they believe, result in watered down curricula and a tolerance of mediocre teaching and inappropriate student behavior. The result is that the prophecy of low achievement becomes self-fulfilling.Although research has shown that learning gains are substantially larger when students take more demanding courses 2 , only a minority of students enroll in these courses. There are several reasons for this. Guidance counselors in many schools allow only a select few into the most challenging courses. While most schools give students and parents the authority to overturn counselor recommendations, many families are unaware they have that power or are intimidated by the counselor's prediction of failure in the tougher class. As one student put it:"African-American parents, they settle for less, not knowing they can get more for their students." Consequently, the bulk of students who do not aspire to attend selective colleges quite rationally avoid rigorous courses and demanding teachers.When teachers try to set high standards, they often get pressured to go easy. The following story is from southern Texas in the early 1980s. This story is not an isolated example. Thirty percent of American teachers say they "feel pressure to give higher grades than students' work deserves." Thirty percent also feel pressured "to reduce the difficulty and amount of work you assign."9 The Ro...

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