Monetary Incentives and Student Achievement in a Depressed Labor Market: Results from a Randomized Experiment

We evaluate the effectiveness of monetary incentives in enhancing student performance using a randomized experiment involving undergraduate students enrolled at a southern Italian University. Students were assigned to three different groups: a high-reward group, a low-reward group, and a control group. Rewards were given to the 30 best-performing students in each group. Financial rewards increase student performance. High-ability students react strongly whereas the effect is null for low-ability students. Large and small rewards produce very similar effects. These effects also persist in subsequent years, when the financial incentives are no longer in place. No types of crowding-out effects of the monetary incentives are found.