Too Much Information: When Does Additional Testing Benefit Schools?

In the United States, most K-12 students now take annual standardized tests. As a result, school districts that traditionally utilized ongoing "formative'' assessments of student progress increasingly rely on additional "interim" assessments to predict student performance on standardized tests. Moreover, some districts are experimenting with merit-based teacher incentives tied to student performance on state tests. We examine the relationship between predictive midyear assessments and teacher incentives using a two-period principal-agent model. The school district (principal) decides whether to implement interim assessments and how much merit pay to offer, while teachers (agents) choose how much effort to exert each period. We use two-state ("proficient" vs. "not proficient'') Markovian dynamics to describe the evolution of student test readiness. Our results indicate that even free interim assessments are not always beneficial. For "not-proficient'' schools, interim assessments only improve performance if the probability of achieving proficiency absent additional teacher effort is non-zero. The interim assessment's value is shaped by the merit-pay budget and the "achievement gap factor,'' the ratio of probabilities of achieving proficiency, under the same level of teacher effort, for a school in the not-proficient vs. proficient state. The interim assessment is valuable under low budget levels if the achievement gap factor is high and under moderate budget levels if it is low. For "proficient'' schools, if the probability of moving to the proficient state without additional teacher effort is zero, the school district should invest in an interim assessment if the budget is moderate and the achievement gap factor is high.