(My first thoughts on the book seem to have expanded into a monstrous post, so I begin here and put the whole thing on the sister blog.)
To take an example, Cowen comments briefly on the use of financial incentives to reward students for good grades:
Roland Fryer, an economist at Harvard, decided to conduct an experiment and pay students for better grades. A new pilot program will reward schoolchildren if they do well on reading and math exame throughout the school year. A score of 80, for instance, would receive a $20 bonus, with further payments for later improvements. Fryer remarked to a reporter: "There are people who are worried about giving kids extra incentives for something that they should be intrinsically able to do...I understand that, but there is a huge achievement gap in this country, and we have to be proactive."
Indeed there have been experiments with paying for grades. A school near Detroit, in the Birmingham school district, started paying third-graders "Beverly Bucks" for doing well on homework and tests. A spelling test is worth $2. Their "paycheck" was denominated in terms of dollars but it was good only in the school store. The children also paid taxes on the hallways and on the playgrounds. They could forfeit money too. "If I accidentally hit somebody, I have to lose $4 or $5," said Shane Holmes, eight, who appeared to find a loss that size horrifying.
Fryer has yet to finish this experiment, but I have a prediction: this method will work best in bad schools, where children otherwise see no reason to do their homework or pay attention in class.
There is in fact a long history of paying students for good grades. It was tried as early as 1820, in the New York City school system, by the Society for Progressive Education. The system was abandoned by the 1830s, on the grounds that it encouraged a "mercenary spirit" rather than learning.
Now, an enormous amount of research has been done on the use of token economies in various closed societies (of which schools are only one example) -- various populations in no position to resist experiments in social engineering (children, prisoners, asylum inmates) have been offered the chance to earn rewards in return for various sorts of behaviour valued by the institution. Since time put in at such an institution generally makes it impossible for the inmate to devote time and energy to getting things he or she actually wants, the chance to get something for something is generally welcomed and effective in encouraging the desired behaviour.