Cash Incentives and Achievement in School

In the second half of the 1990's, student grades in Ecuador started to fall. In response, the government set up a conditional cash transfer program for poor families which would pay parents for making sure their children attended school for a predefined number of days.

While most research has shown that the cash payment program has indeed increased attendance levels, there's little known about how students performed.

Now, Ecuadorian economist Juan Ponce and Arjun Bedi of the Institute for the Study of Labor have run the numbers and conclude that there was no positive (or negative) impact on grades from the incentive pay program.

This paper evaluates the impact of a cash transfer program, the Bono de Desarrollo Humano of Ecuador, on students' cognitive achievements....Regardless of the specification and the sample used, we find that there is no impact of the program on test scores, suggesting that attempts at building human capital, as measured by cognitive achievement, require additional and alternative interventions.

The relevant parallel here in the United States are programs like the ones in New York City which pay students small sums if they get better grades. But there are a couple of differences that limit how much of a direct comparison can be made between the Ecuadorian and American schemes. First, payments in the U.S. are made to students, not parents. Second, the American programs are explicitly intended to increase grades, whereas the primary purpose of the Ecuadorian program was to improve school attendance. Still, Ponce and Bedi's results suggest that cash incentives may not be a magic bullet for bridging achievement gaps.