Incentives and School Attendance

In microeconomics, we learn that people respond to incentives, especially monetary incentives. The U.S. tax code is about 17,000 pages long, in part because politicians often try to achieve policy goals by enacting specific taxes or giving special tax breaks. An article in the New York Times this week highlights the use of money incentives in an unusual situation: some schools are offering incentives for student attendance. As a father, I have to admit that I offer my three-year-old son cash bribes with some frequency. (Though that "dollar" I promise him for helping to clean up his room is admittedly on a wildly fluctuating exchange rate with the U.S. dollar.)

To what extent are we comfortable offering cash incentives to encourage behavior that people "should" do on their own? High school attendance is mandatory, after all, so offering cash for perfect attendance may seem redundant. Plus, cash incentives are only one kind of incentive. For example, at one of the schools in the article, students were offered a $25 reward for perfect attendance. But the penalty for missing school was relaxed at the same time. According to the article, "Students were no longer getting grade-point reductions for unexcused absences or having grades withheld if they had more than two unexcused days per quarter." As a result, attendance rates actually dropped from 90% to 85%. Said one student about the cash: "It's $25. I mean, almost nobody cares."

Think of some public policy problem--global warming, the war on terrorism, low school attendance, poverty, anything. Ask yourself some questions about it:

1. Does the problem arise because incentives are misaligned, or because of some other reason?

2. Who is in the best position to fix the problem? A single person, or lots of individuals? What could provide them with an incentive to act differently?

3. How would that person or group of people respond differently to cash incentives, as opposed to other kinds of incentives (legal restrictions, punishments, shame, pride)?

4. If you were able to change that person's or group of people's behavior, how would other people's behavior change in reaction? (For example, if you got all the students at one school to have perfect attendance, would that help teachers teach? Or would it just mean a bunch of rowdy delinquents are now disrupting class instead of skipping school?)