Enabling and incentivizing organizations to act based on their local knowledge is an important aspect of entrepreneurship. The significance of local knowledge in the context of schools is well recognized, but very little research has been done to investigate how to provide discretion and incentives to schools to use this knowledge. The purpose of this paper is to build a model to guide this understanding for policy makers who may wish to foster entrepreneurship for schools and also use it to critique the literature and provide an alternative approach.
The paper applies fundamentals of principal-agent theory to the ownership and governance of schools, the use of teacher incentive pay, and school reform efforts. Focus is on use of teacher incentives and on school choice initiatives.
The author found that many public school teachers will have attenuated incentives, but mandates to increase test score rewards may be counterproductive. Institutional reform via school choice seems more promising. The author identifies several institutional features that are expected to induce more entrepreneurial and productive activity by schools. The author discusses and critiques school reform efforts in this regard, including Tiebout competition, charter schools, voucher programs, and use of “best practice.”
Reform efforts often lack in addressing critical aspects of institutional empowerment and incentives, and research in this regard also is mostly absent. The author contends, however, that dealing and addressing such issues is a key to effective reform.
