Paying students for good grades

This article in the National Post last week caught my attention. It examines whether it makes sense to pay elementary and high school students for attendance and/or academic performance.

This is a fascinating issue and potentially a very good idea. From an economic theory perspective, this looks like a brilliant concept — people respond to incentives, so dangling a carrot in front of students should motivate them to learn more. Moreover, it's likely very affordable; for kids, money generally goes further than for adults. Paying a potential $50 bonus for good performance over a school year could be a significant incentive for most kids, but wouldn't cost a school board that much. For a class of 30 students, it's a potential liability of $1,500, which is roughly equivalent to a 2.5% wage increase for teachers (and that's assuming every student earns a bonus, which seems unlikely).

I'm sure monetary incentives would improve some students' performance, but I'm not sure whether it's a smart policy overall, as I can think of a couple major issues. First, what if students are already getting good grades? You'll now be paying them for what they've already been doing for free. That's inefficient, since the taxpayer is achieving the same results but at a higher cost.
Second, the incentive might change how students think about school, which has the potential to backfire big time. It's the "Israeli daycare phenomenon" that I blogged about in my September musings on Ikea's cafeteria. Parents normally picked their kids up from daycare on time because it was the right thing to do. But when the daycare started fining parents who were late, tardiness increased sharply; parents did a cost-benefit analysis and decided the fine was worth it if it bought them some extra time. If students start doing a cost-benefit analysis of school instead of attending because it's the right thing to do, they could decide it makes financial sense to slack off or drop out.

Still, it would be interesting to see more schools experiment with this idea, since it could be a potentially effective way of helping students learn. I did a quick Google Scholar search and couldn't find any studies examining whether pay-for-performance is effective in schools, so it would be interesting for some schools to try this and record student performance so researchers can get some hard evidence on whether or not this would work in practice.