Econintersect: Do performance based grants and scholarships lead to better student grades and attendance? A recent study by Lisa Barrow and Cecilia Elena Rouse reveals some answers to this question.
Although education policymakers have become increasingly interested in using incentives to improve educational outcomes, the evidence continues to generate, at best, small impacts, leading to the question of whether such incentives can actually change student effort toward their educational attainment as suggested by Becker’s model of individual decision-making. As a whole, we find evidence consistent with this model: students eligible for performance-based scholarships increased effort in terms of the amount and quality of time spent on educational activities and decreased time spent on other activities. Further, it appears that such changes in behavior do not persist beyond eligibility for the performance-based scholarship suggesting that such incentives do not permanently change their cost of effort or their ability to transform effort into educational outcomes. And, students expected to be most responsive to the incentive – such as those with fewer time constraints and those who may be more myopic in their time preferences – likely were.
An important question arising from this study is why the larger incentive payments did not generate larger increases in effort. We offer a few potential explanations worthy of further consideration. First, the result may suggest that students need just a small prompt to encourage them to put more effort into their studies but that larger incentives are unnecessary. Further, it is possible that as the value of the incentive payment (external motivation) increases, students’ internal motivation declines at a faster rate such that negative impacts on intrinsic motivation increasingly moderate any positive impacts of the incentive on educational effort. [The evidence available in our study on this last point does not suggest this is a promising explanation, but such evidence is far from conclusive.]
It may also be that students face constraints in their ability to change their effort level such that they are unable to change their behavior further, as suggested by the smaller impact on time on academic activities for participants who were also parents. Finally, these results could also be consistent with students not fully understanding their own “education production function,” i.e. how their own effort and ability will be transformed into academic outcomes like grades. While the students seem to understand that increases in effort are necessary to improve outcomes, they may overestimate their likelihood of meeting the benchmark and underestimate the marginal impact of effort on the probability of meeting the benchmark leading to suboptimal levels of effort. [While this interpretation is appealing and we believe worthy of further consideration, it does suggest that we would expect larger scholarships to induce larger responses in the second semester after students have learned more about their own abilities and effectiveness at transforming effort into grades, which we do not find.] While our data do not allow us to thoroughly understand why larger incentive payments did not generate larger changes in behavior, understanding why they did not would be important for the optimal design of incentive schemes to improve educational attainment.
More generally, this study highlights the potential benefits of better understanding student behavior in response to interventions to provide insights for future policy development. For example, if further study confirms that, indeed, those most likely to be constrained by time (such as parents) are less able to change the amount of time devoted to studies, then effective strategies to improve educational attainment among nontraditional students must recognize this reality among these students. Specifically, any efforts to improve their educational outcomes must also address constraints on their time, allowing them the ability to respond to the intervention or program, such as strategic scheduling and bundling of classes or more condensed curricula. And, if this intervention was more effective for high school drop outs because of a difference in time preference, strategies for helping this population of students would be more effective if combined with systems that made rewards to increased academic effort more immediate.
Finally, while the evidence from this study of performance-based scholarships suggests modest impacts, such grants may nonetheless be a useful tool in postsecondary education policy as they appear to induce positive behavioral changes, and evidence from other similar studies, such as Barrow et al. (2014), suggests that even with small impacts on educational attainment, such relatively low-cost interventions may nonetheless be cost effective.
The entire study is available here.
Any views expressed in this paper do not necessarily reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.