Moral Hazard in Education

Like a lot of Americans, I’ve spent a substantial portion of the last three years learning about the dysfunction of our nation’s financial systems.  In particular, I’ve been somewhat obsessed with this concept of moral hazard:

Moral hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk.

I’ve been thinking about the manifestations of this concept in public education.  From top to bottom, actors in public school systems are insulated from the risk of student failure.  Superintendents rarely – if ever – are held accountable allowing literally millions of children to remain undereducated.  Teachers, whose direct impacts on students are easier to measure, are incredibly insulated from student risk … to the extent that in a city like New York, where a full 40% of students do not graduate from high school, only 10 out of over 50,000 teachers were fired last year (about 0.02%).

The general understanding in other sectors is that the presence of moral hazard – whether in the form of bailouts for big banks or golden parachutes for CEOs – causes shabby decision making.  Not all accountability is good accountability, and measuring outcomes without giving folks real tools to be effective is a recipe for similarly bad decisions (and potential corruption).  But I would challenge folks who think that it was bad for bank CEOs to be insulated from their economy destroying decisions to explain why this shouldn’t be the case for actors in our systems of public education.

2 Responses to Moral Hazard in Education

  1. Kathleen Smith says:

    Interesting comment. Leaves one something to think about. .02%. Hmm. Bad teachers or bad leadership …. principals, district, boards, superintendents, or otherwise. (or both).

  2. Just a question. Do you have a reason for saying that it would be smart to use accountability to drive school improvements after providing resources?

    If so, why?

    You assume that it would help students if we held superintendents accountable for raising student performance. Do you have a reason for that assumption?

    Is there any reason to believe that students would benefit if teachers weren’t insulusated from risks?

    Just asking.

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