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  5. Welfare Implications of Heterogeneity in Value-Added Measures
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Welfare Implications of Heterogeneity in Value-Added Measures

Paper Session

Friday, Jan. 5, 2024 2:30 PM - 4:30 PM (CST)

Convention Center, 225A
Hosted By: American Economic Association
  • Chair: Michael David Ricks, NBER

From Value Added to Welfare Added: A Social-Planner Approach Applied to Education Policy

Tanner Eastmond
,
University of California-San Diego
Nathan Mather
,
Intensity, LLC
Michael David Ricks
,
NBER
Julian Betts
,
University of California-San Diego

Abstract

Though ubiquitous in research and practice, mean-based “value-added” measures may not fully inform policy or welfare considerations when policies have heterogeneous effects, impact multiple outcomes, or seek to advance distributional objectives. In this paper we formalize the importance of heterogeneity for calculating social welfare and quantify it in an enormous public service provision problem: the allocation of teachers to elementary school classes. Using data from the San Diego Unified School District we estimate heterogeneity in teacher value added over the lagged student test score distribution. Because a majority of teachers have significant comparative advantage across student types, allocations that use a heterogeneous estimate of value added can raise scores by 34-97% relative to those using only standard value added estimates. These gains are even larger if the social planner has heterogeneous preferences over groups. Because reallocations benefit students on average at the expense of teachers' revealed preferences, we also consider a simple teacher compensation policy, finding that the marginal value of public funds would be infinite for bonuses of up to 14% of baseline pay. These results, while specific to the teacher assignment problem, suggest more broadly that using information about effect heterogeneity might improve a broad range of public programs—both on grounds of average impacts and distributional goals.

Racial Disparities in the Quality of Nursing Home Care

Liran Einav
,
Stanford University and NBER
Amy Finkelstein
,
Massachusetts Institute of Technology and NBER
Neale Mahoney
,
Stanford University and NBER
James Okun
,
Massachusetts Institute of Technology

Abstract

We document significant disparities in the quality of publicly-financed nursing home care provided to Black patients and White patients in the United States. To do so, we use detailed data on the physical and mental health of about 0.5 million Black and 4 million White nursing home patients covered by Medicare between 2011 and 2016 to estimate race-specific quality measures for almost 10,000 nursing homes. We estimate that, on average, Black patients in our sample receive a quality of nursing home care that is only about one-third of that received by White patients. About two-thirds of this disparity reflect differences in the quality of care received by observably similar Black and White patients in the same nursing home, rather than differences in which nursing homes different patients go to. Within-nursing home disparities are smaller in nursing homes that treat a larger share of Black patients and in for-profit nursing homes, and larger in nursing homes with higher staffing ratios.

Teacher Labor Market Policy and the Theory of the Second Best

Michael Bates
,
University of California-Riverside
Michael Dinerstein
,
University of Chicago
Andrew Johnston
,
University of California-Merced
Isaac Sorkin
,
Stanford University

Abstract

The teacher labor market is a two-sided matching market where the effects of policies depend on the actions of both sides. We specify a matching model of teachers and schools that we estimate with rich data on teachers' applications and principals' ratings. Both teachers' and principals' preferences deviate from those that would maximize the achievement of economically disadvantaged students: teachers prefer schools with fewer disadvantaged students and largely away from their comparative advantage, and principals' ratings are weakly related to teacher effectiveness. In equilibrium, these two deviations combine to produce a surprisingly equitable current allocation where teacher quality is balanced across advantaged and disadvantaged students. To close academic achievement gaps, policies that address deviations on one side alone are ineffective or harmful, while policies that address both deviations could substantially increase disadvantaged students' achievement.

Discussant(s)
Nolan G. Pope
,
University of Maryland
Martin Hackman
,
University of California-Los Angeles
Lars Lefgren
,
Brigham Young University
JEL Classifications
  • I0 - General
  • H4 - Publicly Provided Goods