Incentives for Efficiency and Equity in the School System

Abstract: Recently available evidence emphasizes the role of cognitive skills in determining not only individual earnings but also national growth rates. While prior studies concentrated on just school attainment as a measure of human capital, the availability of more refined quality measures using student achievement assessments demonstrates the inadequacies of these pure quantity measures of schooling. Improving cognitive skills, such as those measured by PISA, has, however, proved difficult. The only viable approach appears to be improving the incentives for higher performance. But particularly the reactions to demand-side incentives indicate a requirement to focus incentives carefully on achievement.