The effect of financial rewards on students' achievement: Evidence from a randomized experiment
Edwin Leuven Hessel Oosterbeek Bas van der Klaauw
March 2005
Abstract
In a randomized field experiment where first year university students could earn
financial rewards for passing the first year requirements within one year we find
small and non-significant average effects of financial incentives on the pass rate
and the numbers of collected credit points. There is however evidence for het-
erogeneous treatment effects. In particular, in the first year high ability students
have higher pass rates and collect significantly more credit points when assigned
to (higher) reward groups. Low ability students collect less credit points when
assigned to higher reward groups. After three years these effects have increased,
suggesting dynamic spillovers. The small average effect is therefore the sum of
a positive effect of high ability students and a (partly) off-setting negative effect
for low ability students. A negative effect of financial incentives for less `capi-
talized' individuals is in line with research from psychology and recent economic
laboratory experiments which shows that external rewards may be detrimental for
intrinsic motivation.