For Reformers: An Important Paper on Worker Compensation and Incentives
I’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