In a Small Moment: Moral Hazard and Class Size in the Italian Mezzogiorno

Abstract:

We use a regression discontinuity (RD) design to document a class size effect in Italian primary schools. These gains are driven mainly by schools in Southern Italy, suggesting a substantial return to class size for residents of the Mezzogiorno. In addition to low SES, however, the Mezzogiorno is distinguished by pervasive manipulation of standardized test scores, either by cheating or by shirking, a finding revealed by a natural experiment that randomly assigned school monitors. RD estimates also show that small classes increase score manipulation. Estimates of a causal model for achievement with two endogenous variables, class size and score manipulation, suggest that the effects of class size on measured achievement are driven entirely by the relationship between class size and manipulation. Finally, we pinpoint the source of moral hazard in Italian assessments. An item-level analysis shows dishonest scoring to be a consequence of teacher shirking more than teacher cheating. These findings show how score manipulation can arise even in assessment systems with few accountability concerns.