This paper illustrates the central role of persistence in estimating and interpreting value-added models of learning. Using data from Pakistani public and private schools, we apply dynamic panel methods that address three key empirical challenges: imperfect persistence, unobserved heterogeneity, and measurement error. Our estimates suggest that only one-fifth to one-half of learning persists between grades and that private schools increase average achievement by 0.25 standard deviations each year. In contrast, value-added models that assume perfect persistence yield severely downward estimates of the private school effect. Models that ignore unobserved heterogeneity or measurement error produce biased estimates of persistence.
Andrabi, T.; Das, J.; Khwaja, A.J.; Zajonc, T. Do Value-Added Estimates Add Value? Accounting for Learning Dynamics. American Economic Journal: Applied Economics (2011) 3 (3) 29-54. [DOI: 10.1257/app.3.3.29]