Performance Information and Personnel Decisions in the Public Sector: The Case of School Principals

Performance evaluation of leaders is challenging in contexts where production processes are complex and there are conflicting pressures from interest groups. In the education context, school accountability systems assemble rich data and report both categorical rating and the underlying student pass rates that determine it, permitting the investigation of how different information affects labor market outcomes of school leaders. Applying regression discontinuity methods that by design hold effectiveness constant, we find sizable positive impacts on Texas elementary school principal retention and salaries for crossing the unacceptable–acceptable boundary but not for crossing higher rating cutoffs. These patterns suggest that public stigma from receiving an unacceptable rating plays a role in the unequal treatment of equally effective principals. While the labor market penalty could theoretically improve the distribution of principal quality through well-targeted departures, there is substantial overlap in principal value-added distributions across rating categories, and failure to cross the acceptable threshold does not lead to future improvements in school performance.