When Incentives Matter Too Much: Explaining Significant Responses to Irrelevant Information / Thomas Ahn, Jacob L. Vigdor.

Format:

Book

Author/Creator:

Ahn, Thomas.

Contributor:

National Bureau of Economic Research.

Vigdor, Jacob L.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20321.

NBER working paper series no. w20321

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

When Incentives Matter Too Much

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

When economic agents make decisions on the basis of an information set containing both a continuous variable and a discrete signal based on that variable, theory suggests that the signal should have no bearing on behavior conditional on the variable itself. Numerous empirical studies, many based on the regression discontinuity design, have contradicted this basic prediction. We propose two models of behavior capable of rationalizing this observed behavior, one based on information acquisition costs and a second on learning and imperfect information. Using data on school responses to discrete signals embedded in North Carolina's school accountability system, we find patterns of results inconsistent with the first model but consistent with the second. These results imply that rational responses to policy interventions may take time to emerge; consequently evaluations based on short-term data may understate treatment effects.

Notes:

Print version record

July 2014.