Funding education: developing a method of allocation for improvement

Purpose Resource allocation is a key policy instrument that affects the educational achievement distribution (EAD). The literature on methods of allocation is focused mainly on equity issues. The purpose of this paper is to develop a composite funding formula, which adds to the equity-based element (i.e. a needs-based element compensating for students’ low starting points), an element of rewarding improvement in schools’ educational achievement distribution (IEAD) (i.e. raising the overall level of achievement and narrowing the achievement gap). Design/methodology/approach This formula is developed using advanced regression models as well as integrating further policy considerations. The data sets are comprised of nation-wide student-level information on longitudinal students’ achievements (8th graders of 2006, and four years later 12th graders 2010), as well as student background characteristics, and teacher profiles and school features. The Israel data serve as an interesting case study for other countries which are similarly characterized by its students’ diversity, and by its aspiration to improve its EAD and to narrow the achievement gap. Findings Results reveal that the variance among students’ performance is mostly explained by their past performance. In addition, other background characteristics also contribute to the explained variation in students’ performance; however, a lower contribution was found, compared with that of the previous performance. Specifically, schools’ value added contributes 25 percent to the overall 50 percent of explained variance. In other words, allocating resources to schools solely with accordance to equity issues might have an adverse effect on improvement. Yet, designing a composite mechanism that integrates both equity and improvement issues might be more effective. Practical implications Policy makers in other countries that strive to achieve improvement as well as equity in education might consider adjusting the technique developed in this work. The proposed technique might be adjusted based on each country’s nation-wide student-level data. The design of a research-based funding formula aimed at improvement in education as well as considering equity issues might be more effective, equitable, and efficient. Originality/value The main contribution of this work is the conceptual development of IEAD, as well as its measured weight in the funding formula. This work suggests an innovative method of allocation that rewards schools by allocating larger resources based on the improvement gained in the process of learning (not just on the inputs or outputs/outcomes). This research value lays in its design of a composite funding formula that takes into account, in addition to the equity component, an innovative improvement-based component. In addition to that, the value of this research lays on its policy implications. This research suggests and develops a technique for developing a research-based funding formula that might be useful for other countries aspire to improve their education.