This paper studies the effects of incentive mechanisms and of the competitive environment on the interaction between schools and students, in a set-up where the students' educational attainment depends on their peer group, on their effort, and on the quality of the school's teaching. We show that increasing the power of the incentive scheme and the effectiveness of competition may have the counterintuitive effect of lowering the students' effort. In a simple dynamic set-up, where the reputation of the schools affects recruitment, we show that more powerful incentives and increased competition lead to segregation of pupils by ability, and may also determine lower attainment in some schools. D

While students from more advantageous family backgrounds tend to perform better, it is not clear that they exert more eort compared to those from less advantageous family backgrounds. We build a model of students, schools, and employers to study the interaction of family background and eort exerted by the student in the education process. Academic qualications, which entail an income premium in the labor market, are noisily determined by eort and the student's ability to benet from education, which in turn depends on her family background and innate talent. In a situation where schools set the optimal passing standard, two factors turn out to be key in determining the relationship between eort and family background: (i) the student's risk aversion and (ii) the degree with which family background alters the student's marginal productivity of eort. We show that when the degree of risk aversion is relatively low (high) compared to the sensitivity of the marginal productivity of the student's eort with respect to her family background, the relation between eort and family background is positive (negative) and students from more advantageous family backgrounds exert more (less) eort. Considering Spanish data and controlling for school xed eects, we nd that an improvement in parental education from not having completed compulsory education to holding a university degree is associated to around 15% more eort by the student (approximately 1 hour and 20 minutes of additional weekly homework). We also nd empirical evidence consistent with our assumption that students' marginal productivity of eort varies with family background.JEL classication: I21, I28, D81.

This paper studies the effects of incentive mechanisms and of the competitive environment on the interaction between schools and students, in a set-up where the students' educational attainment depends on their peer group, on their effort, and on the quality of the school's teaching. We show that increasing the power of the incentive scheme and the effectiveness of competition may have the counterintuitive effect of lowering the students' effort. In a simple dynamic set-up, where the reputation of the schools affects recruitment, we show that more powerful incentives and increased competition lead to segregation of pupils by ability, and may also determine lower attainment in some schools. D

In this article we compare a competency system based on an absolute standard vs. a competitive grading system (tournament) in terms of the student effort level they are able to motivate. We prove, unlike other previous work, that more risk does not always discourage effort under a competency grading system. Furthermore, relative advantage depends crucially on the nature of the noise distorting academic achievement. If systematic factors prevail then a tournament is preferred to a competency system based on absolute standards, while if idiosyncratic factors predominate the last is more efficient. Comparisons are effective only and only if the passing standard is fixed at the efficient level that promotes in the student the highest optimal effort.

This paper presents a screening model of education in which students having private information about their innate abilities are noisily tested in school. The aim is to explore the effect of noise on the screening equilibrium. By assuming that labour contracts take the form of reward schedules based on inaccurate academic qualifications, one can show that separating equilibrium turns out to be unique but insufficiently revealing, and both high and low ability types become overeducated. Also, even when separation is uncompleted, we show that a firm could still profitably cream-skim the market so that no pooling equilibrium exits. As in the non-noise case, the existence of an equilibrium is assured when the student population is made up mainly of a small proportion of high-ability individuals, but in that case the fraction required is even lower. Copyright 2005 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.