The Effect of Bonuses on Teacher Retention and Student Learning in Rural Schools: A Story of Spillovers

Abstract We estimate the direct and indirect effects of recruitment bonuses paid to teachers working in rural schools in Peru on their retention and student learning. This is the first study to estimate the indirect effects of a bonus aimed at attracting teachers to disadvantaged schools. This is important for assessing whether the incentive has improved the distribution of teaching resources and for estimating the direct effect without bias. We exploit the exogenous variation produced in the size of the bonus by the rule used to classify rural schools, and allow ineligible schools to be affected if they have an eligible school nearby. We find the bonus produces positive direct effects on teacher retention but also a negative spillover on the probability of filling teacher vacancies in neighboring schools. This spillover indicates that the bonus is redistributing resources between equally disadvantaged schools. We also find that the bonus has no direct effects on student learning and produces a positive spillover on the scores of students in neighboring schools. We argue these results are due to the poor pedagogical skills of the teachers being mobilized by the scheme. A reasonable policy alternative is a scheme that targets talented teachers with larger bonuses.