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Wednesday, March 19, 2014

For Reformers: An Important Paper on Worker Compensation and Incentives | Paul Bruno

For Reformers: An Important Paper on Worker Compensation and Incentives | Paul Bruno:



For Reformers: An Important Paper on Worker Compensation and Incentives

7214510228_fa7685186d_nI’ve written before that education reformers often have an unfortunate lack of perspective about the way the world works outside of education. This means that reformers often unjustifiably assume – implicitly or explicitly – that their proposed changes would make education more like other sectors. This assumption, in turn, makes reformers’ proposals seem more intuitive and leads reformers to underestimate their potential disadvantages.
As a result, if I had to pick one study that I think all would-be education reformers should read, it would be a paper that I once found via Bryan Caplan. It’s an old paper – from 1988 – and it’s not even about education. Rather, it’s an examination of why most companies don’t use the sorts of compensation and incentive schemes that a simplistic understanding of economics might imply they do or should. Here’s the abstract:
A thorough understanding of internal incentive structures is critical to developing a viable theory of the firm, since these incentives determine to a large extent how individuals inside an