The Importance of Relative Performance Feedback Information: Evidence from a Natural Experiment using High School Students

Abstract

We study the effect of providing relative performance feedback information on performance under piece-rate incentives. A natural experiment that took place in a high school offers an unusual opportunity to test this effect in a real-effort setting. For one year only, students received information that allowed them to know whether they were above (below) the class average as well as the distance from this average. We exploit a rich panel data set and find that the provision of this information led to an increase of 5% in students’ grades. Moreover, the effect was significant for the whole distribution. However, once the information was removed the effect disappeared. To rule out the concern that the effect may be driven by teachers within the school, we verify our results using national level exams (externally graded) for the same students, and the effect remains.

Improving students’ performance has been an important concern for academics and educational policy makers alike. Given the recent introduction of the OECD coordinated Programme for International Student Assessment (PISA), improvements in students’ performance, measured by their grades, is at the heart of governmental reform.¹ The education literature has focused on school inputs as the principle means to improve students’ performance, in particular, reduction in pupil/teacher ratio, improved quality of teacher (experience and education), and extended term length (See Krueger (1999), Card and Krueger (1992)). There is however, a lively debate regarding the effectiveness of school inputs, largely due to their associated costs (Hanushek (1996, 2003)). Moreover, the PISA reports do not show a strong positive relationship between the amount spent per student and the performance in the standardised tests in mathematics, science and reading. For example, the US ranks second in expenditure per pupil (91,770$) but ranked twenty-second (out of 30) in performance (see OECD PISA report, 2006).

More recently, there has been interest in analyzing the relevance of performance evaluations and feedback information regarding these evaluations. The effect of interim feedback information about own performance on subsequent performance has been studied mostly in labour settings². The importance of interim feedback information on students’ performance has been empirically studied by Bandiera et al. (2008). The authors find that providing university students with interim feedback information about own performance has a positive effect on their final performance. However, feedback information involving relative performance has received less attention. The provision of relative performance feedback information allows for social comparison (individuals can evaluate their own performance by comparing themselves to others, Festinger (1954)). While this has been extensively studied in management and psychology literature (see Festinger (1954), Locke and Latham (1990) and Suls and Wheeler (2000) for an overview), it has not been fully explored in economics.³

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