Incentives Work

I've always thought there was something a little funny about No Child Left Behind's efforts to use standards and accountability to get teachers and schools to perform better. Why not just go right to the source and given students direct financial incentives to do well in school? Decent people find the idea abhorrent, I know, but there are clear theoretical reasons to think it would work and the empirical evidence suggests that it works.

Now naturally every individual actually has strong incentives to do well in school anyway. But children tend to exhibit a very high rate of pure time preference. Short-term financial incentives (or, indeed, non-financial incentives like the gold stars my elementary school teachers used to hand out) help align the short- and long-run incentive picture. Meanwhile, educational attainment has positive externalities, so it's worth spending money on.