Evaluation of performance funding systems : results from the event study design
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As part of the national agenda of accountability, state governments established performance funding policy to hold public institutions accountable for their performance. Accountability allows state policymakers to incentivize institutions to address state demands of increasing graduation rates in return for performance allocations. Although the states have implemented the policy for the same goal of increasing graduation rates, they allocate different levels of funding to their public institutions. Performance funding levels vary across the states from 1% to 100% of institutional base funding. However, it is not clear which funding level is more effective, if any. The purpose of this study is to evaluate the performance funding systems that allocate different funding levels and determine whether one performance funding system is more effective than the other(s). I employed the event study design to capture the variation in the event impact of the policy on the outcome (i.e., graduation rates). The findings revealed little evidence of consistent effect for performance funding systems on graduation rates in four-year institutions. However, two-year institutions in four out of the six cases examined in this study did have a statistically significant event impact on graduation rates when compared to their counterparts in the neighbors and nonadopters. The study offers some implications for state policymakers to make research-driven decisions regarding their performance funding policy.
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Ed. D.