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Learning for a bonus: How financial incentives interact with preferences

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  • Oswald, Yvonne
  • Backes-Gellner, Uschi

Abstract

This paper investigates the effect of financial incentives on student performance and analyzes for the first time how the incentive effect in education is moderated by students' time preferences. To examine this effect, we use real labor market incentive programs that we combine with data from experiments on time preferences. We find not only that students who are offered financial incentives for better grades have on average better first- and second-year grade point averages but also, more strikingly, that highly impatient students respond more strongly to financial incentives than relatively patient students. This finding suggests that financial incentives are most effective at the beginning of an educational program, when real labor market benefits are in the distant future.

Suggested Citation

  • Oswald, Yvonne & Backes-Gellner, Uschi, 2014. "Learning for a bonus: How financial incentives interact with preferences," Journal of Public Economics, Elsevier, vol. 118(C), pages 52-61.
  • Handle: RePEc:eee:pubeco:v:118:y:2014:i:c:p:52-61
    DOI: 10.1016/j.jpubeco.2014.06.003
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    Cited by:

    1. Andreoni, James & Kuhn, Michael A. & List, John A. & Samek, Anya & Sokal, Kevin & Sprenger, Charles, 2019. "Toward an understanding of the development of time preferences: Evidence from field experiments," Journal of Public Economics, Elsevier, vol. 177(C), pages 1-1.
    2. Backes-Gellner, Uschi & Herz, Holger & Kosfeld, Michael & Oswald, Yvonne, 2018. "Do Preferences and Biases predict Life Outcomes? Evidence from Education and Labor Market Entry Decisions," CEPR Discussion Papers 12609, C.E.P.R. Discussion Papers.
    3. Peter Hoeschler & Uschi Backes-Gellner, 2017. "The Relative Importance of Personal Characteristics for the Hiring of Young Workers," Economics of Education Working Paper Series 0142, University of Zurich, Department of Business Administration (IBW), revised Jan 2018.
    4. Mohrenweiser, Jens & Zwick, Thomas & Backes-Gellner, Uschi, 2013. "Poaching and firm-sponsored training: First clean evidence," ZEW Discussion Papers 13-037, ZEW - Leibniz Centre for European Economic Research.
    5. Rinawi, Miriam & Backes-Gellner, Uschi, 2013. "Should I stay or should I go? - The Effect of Performance Pay on the Retention of Apprenticeship Graduates," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80024, Verein für Socialpolitik / German Economic Association.
    6. Jens Mohrenweiser & Thomas Zwick & Uschi Backes‐Gellner, 2019. "Poaching and Firm‐Sponsored Training," British Journal of Industrial Relations, London School of Economics, vol. 57(1), pages 143-181, March.
    7. Mohrenweiser, Jens & Wydra-Sommaggio, Gaby & Zwick, Thomas, 2015. "Work-related ability as source of information advantages of training employers," ZEW Discussion Papers 15-057, ZEW - Leibniz Centre for European Economic Research.
    8. Balestra, Simone & Eugster, Beatrix & Liebert, Helge, 2017. "The Effect of School Starting Age on Special Needs Incidence and Child Development into Adolescence," CEPR Discussion Papers 12515, C.E.P.R. Discussion Papers.
    9. Eggenberger, Christian & Rinawi, Miriam & Backes-Gellner, Uschi, 2018. "Occupational specificity: A new measurement based on training curricula and its effect on labor market outcomes," Labour Economics, Elsevier, vol. 51(C), pages 97-107.
    10. Jens Mohrenweiser & Gabriele Wydra-Somaggio & Thomas Zwick, 2017. "Information Advantages of Training Employers Despite Credible Training Certificates," Economics of Education Working Paper Series 0121, University of Zurich, Department of Business Administration (IBW), revised Apr 2017.
    11. Poutvaara, Panu & Ropponen, Olli, 2018. "Shocking news and cognitive performance," European Journal of Political Economy, Elsevier, vol. 51(C), pages 93-106.
    12. Mohrenweiser Jens & Pfeiffer Friedhelm, 2015. "Coaching Disadvantaged Young People: Evidence from Firm Level Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(4-5), pages 459-473, August.
    13. Hoeschler, Peter & Balestra, Simone & Backes-Gellner, Uschi, 2018. "The development of non-cognitive skills in adolescence," Economics Letters, Elsevier, vol. 163(C), pages 40-45.
    14. Metcalfe, Robert & Burgess, Simon & Proud, Steven, 2019. "Students' effort and educational achievement: Using the timing of the World Cup to vary the value of leisure," Journal of Public Economics, Elsevier, vol. 172(C), pages 111-126.

    More about this item

    Keywords

    Student performance; Financial incentive; Time preference; Vocational education;

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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