A vexing question for a parent, particularly an economist, is whether or not to reward your kids monetarily for higher school grades. Let me admit right here that this is how I was raised: something like 10 dollars for every subject I got an A, 5 dollars for a B and nothing for anything less.
From a standard economic point of view, the question is a no-brainer: the long-run advantages of doing well at school are enormous but ill-recognised by a young kid. Hence, more short-term monetary incentives repair the inability of the kid to rationally invest in the far future. Even if one has an exceptionally far-sighted kid, the damage of further rewards is minimal, so no harm done by rewarding them with money.
An array of further arguments goes the same direction; if parents get status-rents out of a kid that does well at school, then monetary rewards are basically a form of compensation for the effort the kid puts into producing services of value to the parents. Similarly, by introducing monetary compensation one encourages academic competition between siblings, further enhancing the academic success of all of them. The setting of monetary incentives furthermore prepares them for the world of work, as good school outcomes are primarily a ticket to that world anyway. Etc.
What about the negatives? One of the good reasons many parents don’t go in for it, I suspect, is because they have kids who differ a lot in academic ability and don’t want to end up giving one kid lots of money for high grades whilst the other kid has to suffer. So if the kids are far apart in ability, it is tough to do this.
Another possible reason is if one doesn’t want to crowd out internal motivation. This, I feel, depends a lot on the kid and the culture of the parents. If kids are prone to be motivated by things they know their parents find important, then the crowding out seems far-fetched. Indeed, parents offering money is then a symbol of their appreciation for grades. But if the kid is prone to want the opposite of what the parent signals to value, then offering money could lead them to tune out of the world of school completely just to avoid thinking of himself or herself that they are complying.
So who should pay for good grades? People whose kids are closely-matched in ability, prone to competitiveness, somewhat short-sighted, and eager to please the parents anyway.
Core Economics 
I have never come across such a clear statement of parents living vicariously through their children: they get status-rents from them doing well at school! This says more about the culture of middle class baby boomer parents than 100 op eds. I salute your cold economist’s eye (not to mention turn of phrase) .
Anyway, is it really a no-brainer from the economic point of view? Might not paying kids NOW to take the rational long term view entrench their natural youthful obsession with the now? This is similar to your second last paragraphs but not identical.
Regarding the negative of unequal siblings you mentioned, how about rewarding each child according to their baseline? So they get $5 for getting the same grade as last term but $10 for getting a higher grade?
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Hi Chris,
thanks.
Paying a kid now for grades gotten over a 3 month period also means you are incentivising them now with a reward in 3 months, so there is a bit of delayed gratification in this kind of scheme.
As to the adaptive scheme you propose, I would fear that my kids would work out what they should then rationally do: get really lousy grades one semester, and then improve a couple of semesters in a row, reverting to a really lousy grade again to start the improvement cycle anew!
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