Performance pay for teachers is frequently suggested as a way of improving education outcomes in schools, but the theoretical predictions regarding its effectiveness are ambiguous and the empirical evidence to date is limited and mixed. We present results from a randomized evaluation of a teacher incentive program implemented across a large representative sample of government-run rural primary schools in the Indian state of Andhra Pradesh. The program provided bonus payments to teachers based on the average improvement of their students' test scores in independently administered learning assessments (with a mean bonus of 3% of annual pay). At the end of two years of the program, students in incentive schools performed significantly better than those in control schools by 0.28 and 0.16 standard deviations in math and language tests respectively. They scored significantly higher on "conceptual" as well as "mechanical" components of the tests, suggesting that the gains in test scores represented an actual increase in learning outcomes. Incentive schools also performed better on subjects for which there were no incentives, suggesting positive spillovers. Group and individual incentive schools performed equally well in the first year of the program, but the individual incentive schools outperformed in the second year. Incentive schools performed significantly better than other randomlychosen schools that received additional schooling inputs of a similar value.JEL Classification: C93, I21, M52, O15

Performance pay for teachers is frequently suggested as a way of improving education outcomes in schools, but the theoretical predictions regarding its effectiveness are ambiguous and the empirical evidence to date is limited and mixed. We present results from a randomized evaluation of a teacher incentive program implemented across a large representative sample of government-run rural primary schools in the Indian state of Andhra Pradesh. The program provided bonus payments to teachers based on the average improvement of their students' test scores in independently administered learning assessments (with a mean bonus of 3% of annual pay). At the end of two years of the program, students in incentive schools performed significantly better than those in control schools by 0.28 and 0.16 standard deviations in math and language tests respectively. They scored significantly higher on "conceptual" as well as "mechanical" components of the tests, suggesting that the gains in test scores represented an actual increase in learning outcomes. Incentive schools also performed better on subjects for which there were no incentives, suggesting positive spillovers. Group and individual incentive schools performed equally well in the first year of the program, but the individual incentive schools outperformed in the second year. Incentive schools performed significantly better than other randomlychosen schools that received additional schooling inputs of a similar value.JEL Classification: C93, I21, M52, O15

We present experimental evidence on the impact of a school choice program in the Indian state of Andhra Pradesh that provided students with a voucher to finance attending a private school of their choice. The study design featured a unique two-stage lottery-based allocation of vouchers that created both student-level and market-level experiments, which allows us to study the individual and the aggregate effects of school choice (including spillovers). After two and four years of the program, we find no difference between test scores of lottery winners and losers on Telugu (native language), math, English, and science/social studies, suggesting that the large cross-sectional differences in test scores across public and private schools mostly reflect omitted variables. However, private schools also teach Hindi, which is not taught by the public schools, and lottery winners have much higher test scores in Hindi. Furthermore, the mean cost per student in the private schools in our sample was less than a third of the cost in public schools. Thus, private schools in this setting deliver slightly better test score gains than their public counterparts (better on Hindi and same in other subjects), and do so at a substantially lower cost per student. Finally, we find no evidence of spillovers on public school students who do not apply for the voucher, or on private school students, suggesting that the positive effects on voucher winners did not come at the expense of other students.

The large-scale expansion of primary schooling in developing countries has led to the increasing use of non-civil-service contract teachers who are hired locally by the school, are not professionally trained, have fixed-term renewable contracts, and are paid much lower salaries than regular civil-service teachers. This has been a controversial policy, but there is limited evidence on the effectiveness of contract teachers in improving student learning. We present experimental evidence on the impact of contract teachers using data from an 'as is' expansion of contract-teacher hiring across a representative sample of 100 randomly-selected government-run rural primary schools in the Indian state of Andhra Pradesh. At the end of two years, students in schools with an extra contract teacher performed significantly better than those in comparison schools by 0.16 and 0.15 , in math and language tests respectively. Contract teachers were also much less likely to be absent from school than civil-service teachers (18% vs. 27%).Combining the experimental reduction in school-level pupil-teacher ratio (PTR) induced by the provision of an extra contract teacher, with high-quality panel data estimates of the impact of reducing PTR with a regular civil-service teacher, we show that contract teachers are not only effective at improving student learning outcomes, but that they are no less effective at doing so than regular civil-service teachers who are more qualified, better trained, and paid five times higher salaries.1 See Duthilleul (2005) for a discussion of how the lack of qualified teachers has been a key challenge in expanding access to schooling in several countries. Teacher salaries comprise ~70-90% of education spending in most developing countries, and the cost of salaries is typically the main fiscal constraint to education expansion (see http://www.uis.unesco.org/Education for country-level salary data). Fagernas and Pelkonen (2012) study teacher location preferences and show that more qualified teachers are less likely to desire rural postings. 2 Contract teacher schemes have been used in several developing countries including Benin, Burkina Faso, Cambodia, Cameroon, Chad, Congo, Indonesia, Kenya, Madagascar, Mali, Nicaragua, Niger, Senegal, and Togo, (see Duthilleul 2005 andBourdon et al. 2010 for reviews of contract teacher programs). They have also been widely employed in several states of India, under different titles (see Govinda and Josephine 2004 for a descriptive review).

Empirical studies of the relationship between school inputs and test scores typically do not account for household responses to changes in school inputs. Evidence from India and Zambia shows that student test scores are higher when schools receive unanticipated grants, but there is no impact of grants that are anticipated. We show that the most likely mechanism for this result is that households offset their own spending in response to anticipated grants. Our results confirm the importance of optimal household responses and suggest caution when interpreting estimates of school inputs on learning outcomes as parameters of an education production function. (JEL D12, H52, I21, O15) T he relationship between school inputs and education outcomes is of fundamental importance for education policy and has been the subject of hundreds of empirical studies around the world (see Hanushek 2002, and Hanushek and Luque 2003 for reviews of US and international evidence, respectively). However, while the empirical public finance literature has traditionally paid careful attention to the behavioral responses of agents to public programs, 1 the empirical literature estimating education production functions has typically not accounted for household 1