How Do Students Respond to Performance-Based Scholarships?

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Well-designed incentives can induce post-secondary students to increase investments in educational attainment.

Many policies designed to raise student achievement in the United States focus on raising the effort that students devote to their studies, for example by offering rewards for achieving prescribed benchmarks. These strategies are based on the belief that because the payoffs to education may be too far in the future to motivate some students, financial incentives that make the payoffs more immediate may be warranted. In Financial Incentives and Educational Investment: The Impact of Performance-Based Scholarships on Student Time Use, (NBER Working Paper No. 19351), authors Lisa Barrow and Cecilia Rouse test whether and how financial incentives change student behavior using survey data from a field experiment in California and New York. Overall the results indicate that well-designed incentives can induce post-secondary students to increase investments in educational attainment.

In the experiment, students were randomly assigned to treatment and control groups where the treatments were incentive payments which varied in length and magnitude and were tied to meeting performance, enrollment, and/or attendance benchmarks. Students were then asked to fill out a survey including questions about time allocated to different activities as well as questions aimed at measuring the quality of educational efforts, such as learning strategies, academic self-efficacy, and motivation.

The results suggest that providing post-secondary scholarships with incentives to meet specific benchmarks induced students to devote more time to educational activities and to increase the quality of the effort directed toward their studies. Students also allocated less time to other activities such as work and leisure. The incentives did not decrease students' inherent interest in or enjoyment of learning, or increase cheating to raise their grades. The results also suggest that students who appeared to discount the future the most, such as those who dropped out of high school before the twelfth grade, were the most responsive to the incentives. Further, the incentives only generated impact during semesters of eligibility.

A puzzle is that larger incentive payments did not seem to induce students to increase effort more than smaller incentive payments. The authors speculate that this might be because students just need a small prompt to encourage them to put more effort into their studies.

--Claire Brunel