Leuven, E., Oosterbeek, H. and van der Klaauw, B. (2010). The effect of financial rewards on students' achievement: Evidence from a randomized experiment Journal of the European Economic Association, 8(6):1243--1265.
JournalJournal of the European Economic Association
This paper reports on a randomized field experiment in which first-year university students could earn financial rewards for passing all first-year requirements within one year. Financial incentives turn out to have positive effects on achievement of high-ability students, whereas they have a negative impact on achievement of low-ability students. After three years these effects have increased, suggesting dynamic spillovers. The negative effects for less-able students are consistent with results from psychology and behavioral economics showing that external rewards may be detrimental for intrinsic motivation.