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Strategic Interactions in Education: Threshold-triggered compensation of complementary inputs

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Interactions between teachers and students depend on the compensation scheme for their complementary contributions to production of education. Should inputs be re- warded by constant unit prices, strategic complementarity would induce students to study more when better paid teachers work harder. In reality students and teachers are rewarded discretely when their joint output exceeds the threshold for passing exams and completing degrees. In a simple certainty setting where some agents pre- commit their input, and in plausible configurations of a more realistic setting where simultaneous input choices continuously determine the probability that joint output exceeds a threshold, inputs are strategic substitutes: students work less if teachers work harder, and vice versa. This insight makes it possible to characterize theo- retically efficient threshold-triggered compensation schemes and helps interpret the often inefficient outcomes observed not only in education, but also when coauthors of academic papers or athletes in team sports are discretely rewarded for their joint publications or victories.

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  • Bertola, Giuseppe & Dughera,Stefano, 2024. "Strategic Interactions in Education: Threshold-triggered compensation of complementary inputs," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202403, University of Turin.
    • Handle: RePEc:uto:dipeco:202403
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