Community Participation, Teacher Effort, and Educational Outcome: The Case of El Salvador's EDUCO Program

Based on a principal-agent model, this paper investigates the organizational structure that made the El Salvador's primary school decentralization program (EDUCO program) successful. First, we employ the "augmented" reduced form educational production function by incorporating parents and community involvement as a major organizational input. We observe consistently positive and statistically significant EDUCO participation effects on standardized test scores. Then we estimated teacher compensation function, teacher effort functions, and input demand functions by utilizing the theoretical implications of a principal (parental association)-agent (teacher) framework. While the EDUCO school teachers receive piece rate, depending on their performance, wage payment is relatively fixed in the traditional schools. Empirical results indicate that the slope of wage equation is positively affected by the degree of community participation. This finding can be interpreted as the optimal intensity of incentive. Hence, teacher's effort level in the traditional schools is consistently lower than that in the EDUCO schools, indicating a moral hazard problem. Community participation through parental group's classroom visits seems to enhance the teacher effort level and thus increases students' academic performance indirectly. Parental associations can affect not only teacher effort and their performance by imposing an appropriate incentive scheme but also school-level inputs by decentralized school management. Our empirical results support the view that decentralization of education system should involve delegation of school administration and teacher management to the community group.