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International audience; Using data from three waves of PIRLS, this paper examines the effect of teacher quality on fourth-grade students' literacy test scores by exploiting variations induced by reforms in teachers' selection and/or reward schemes. We construct an original data set of relevant reforms taking place at the national level over the last century and affecting the working conditions of primary school teachers, matching them by the year they entered the profession. After showing that teacher experience/age and qualification are significantly correlated with student competencies, we study the correlation between teacher working conditions (including recruitment, pay and retirement policies) and pupil achievement. Our identifying assumption is that the impact of reforms dissipates with the distance between the reform's introduction and entry into the profession. The results point to a more selective recruitment process and, to a lesser extent, more generous reward policies as effective ways to enhance student performance.

This paper documents and studies the gender gap in performance among associate lawyers in the United States. Unlike other high-skilled professions, the legal profession assesses performance using transparent measures that are widely used and comparable across firms: the number of hours billed to clients and the amount of new client revenue generated. We find clear evidence of a gender gap in annual performance with respect to both measures. Male lawyers bill ten percent more hours and bring in more than twice the new client revenue than do female lawyers. We demonstrate that the differential impact across genders in the presence of young children and differences in aspirations to become a law firm partner account for a large share of the difference in performance. We also show that accounting for performance has important consequences for gender gaps in lawyers’ earnings and subsequent promotion. Whereas individual and firm characteristics explain up to 50 percent of the earnings gap, the inclusion of performance measures explains a substantial share of the remainder. Performance measures also explain a sizeable share of the gender gap in promotion.

International audience; This paper examines the incentives from stock options for loss-averse employees subject to probability weighting. Employing the certainty equivalence principle, I built on insights from Cumulative Prospect Theory (CPT) to derive a continuous time model to value options from the perspective of a representative employee. Consistent with a growing body of empirical and experimental studies, the model predicts that the employee may overestimate the value of his options in-excess of their risk-neutral value. This is nevertheless in stark contrast with a common finding of standard models based on the Expected Utility Theory (EUT) framework that options value to a risk-averse undiversified employee is strictly lower than the value to risk-neutral outside investors. In particular, I proved that loss aversion and probability weighting have countervailing effects on the option subjective value. In addition, for typical setting of preferences parameters around the experimental estimates, and assuming the company is allowed to adjust existing compensation when making new stock option grants, the model predicts that incentives are maximized for strike prices set around the stock price at inception. This finding is consistent with companies' actual compensation practices that standard EUT-based models have difficulties accommodating their existence.

PurposeThis paper aims to analyze the valuation of stock options from the perspective of an employee exhibiting preferences as described by cumulative prospect theory (CPT). In addition, it elaborates on their incentives effect and some implications in terms of design aspects.Design/methodology/approachThe paper draws on the CPT framework to derive a continuous time model of the stock option subjective value using the certainty equivalence principle. Numerical simulations are used in order to analyze the subjective value sensitivity with respect to preferences‐related parameters and to investigate the incentives effect.FindingsConsistent with a growing body of empirical and experimental studies, the model predicts that the employee may overestimate the value of his options in‐excess of their risk‐neutral value. Moreover, for typical setting of preferences parameters around the experimental estimates, and assuming the company is allowed to adjust existing compensation when making new stock option grants, the model predicts that incentives are maximized for strike prices set around the stock price at inception. This finding is consistent with companies’ actual compensation practices. Finally, the model predicts that an executive who is subject to probability weighting may be more prompted than a risk‐neutral executive to act in order to increase the firm's assets volatility.Originality/valueThis research proposes an alternative theoretical framework for the analysis of pay‐to‐performance sensitivity of equity‐based compensation that takes into account a number of prominent patterns of employee behavior that expected utility theory cannot explain. It contributes to recent empirical and theoretical researches that have advanced CPT framework as a promising candidate for the analysis of equity‐based compensation contracts.