I was just thinking about schooling and I had a most brilliant idea. The problem with the current model is that students are required to work for no pay. Sure, they acquire education and that is a kind of pay. But the benefits of education are remote and this clearly provides only a marginal incentive to most. The low incentive is reflected in low levels of effort. If students were paid in cash for performance they would exert more effort, just like every other economic agent.
There are a bunch of ways this could be enacted. A simple design would be to pay students according to their rank in the class: The top student receives $1000, the bottom student receives $0, with a linear graduation between. Or the top student could receive a “prize” of $5000. The problem with prizes for exceptional performance is that they do little for the incentives of weaker students, who will rationally anticipate that they have no chance at the prize and so exert no effort. This is the problem with scholarships and other prize based incentive schemes.
The scheme could also be run in a revenue neutral fashion for private schools. Instead of having a fixed fee for each student, the fees would depend on the rank or absolute performance. This would be incentive compatible for parents, who could make substantial savings, or even a profit, if little Jimmy or Jenny put in a little more effort on their maths homework.
Children are generally quite poor. They have low productivity and a low opportunity cost for their time evidenced by their low wages. An additional dollar given to a child will induce more effort than an additional dollar given to a teacher or administrator. Why are we spending money on the most expensive inputs to education? Why has nobody thought of this before?