The Effect of Financial Rewards on Students' Achievement: Evidence from a Randomized Experiment

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. (JEL: I21, I22, J24) (c) 2010 by the European Economic Association.