A new paper by Levitt et. al. (June 2012) explores the effect of financial and non-financial incentives on the performance of high-school students in standardized tests. They find the usual - that incentives matter, and that "incentives framed as losses have more robust effects than comparable incentives framed as gains."
Two findings stand out:
1) "Rewards provided with a delay have little impact on student performance." And,
2) "The introduction of rewards does not crowd-out future effort."
The title of the paper is "The Behavioralist Goes to School: Leveraging Behavioral Economics to Improve Educational Performance."
May be grades were not good enough incentives after all? But something does not sound right about coming to class with awards, chocolates, trophies, and money. In the longer run, once in a new equilibrium, will larger incentives be necessary? Where will this stop?