Abhi Sivasailam
A recent working paper from the National Bureau for Economic Research adds to the evidence that "performance pay" for students produces gains. From the abstract:
Policymakers and academics are increasingly interested in applying financial incentives to individuals in education. This paper presents evidence from a pay for performance program taking place in Coshocton, Ohio. Since 2004, Coshocton has provided cash payments to students in grades three through six for successful completion of their standardized testing. Coshocton determined eligibility for the program using randomization, and using this randomization, this paper identifies the effects of the program on students' academic behavior. We find that math scores improved about 0.15 standard deviations but that reading, social science, and science test scores did not improve.

The Coshocton program is funded with money contributed by a local businessman.

Although 0.15 standard deviations may seem small, it's not bad compared to other educational interventions. In terms of improvement per dollar spent, this program seems more efficient than other more popular interventions, like lowering class sizes.

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Abhi Sivasailam