Students face four decision margins: (a) How many years to spend in school, (b) What to study. (c) How
much effort to devote to learning per year and (d) Whether to disrupt or assist the learning of classmates. This
paper reviews an emerging economic literature on the effects of and determinants of student effort and
cooperativeness (c and d above) and how putting student motivation and behavior at center of one’s
theoretical framework changes one’s view of how schools operate and how they might be made more effective.
In this new framework students have a dual role. They are both (1) investors/consumers who choose which
goals to focus on and how much effort to put into each goal and (b) workers getting instruction and guidance
from their first-line supervisors, the teachers. I present a simple model where the behavior of students,
teachers and administrators depends on the incentives facing them and the actions of the other actors in the
system. The incentives, in turn, depend upon the cost and reliability of the information (signals) that is
generated about the various inputs and outputs of the system. Our review of empirical research support many
of the predictions of the model. Student effort, engagement and discipline vary a lot within schools, across
schools and across nations and have significant effects on learning. Higher extrinsic rewards for learning are
associated the taking of more rigorous courses, teachers setting higher standards and more time devoted to
homework. Taking more rigorous courses and studying harder increase student achievement. Post World War
II trends in study effort and course rigor are positively correlated with achievement trends. Even though,
greater rigor improves learning, parents and students prefer easy teachers.They pressure tough teachers to
lower standards and sign up for courses taught by easy graders. Curriculum-based external exit examinations
improve the signaling of academic achievement to colleges and the labor market and this increases extrinsic
rewards for learning. Cross section studies suggest that CBEEES result in greater focus on academics, more
tutoring of lagging students, more homework and higher levels of achievement. Minimum competency
examinations do not have significant effects on learning or dropout rates but they do appear to have positive
effects on the reputation of high school graduates. As a result, students from MCE states earn significantly
more than students from non-MCE states and the effect lasts at least eight years. Students who attend schools
with studious well-behaved classmates learn more.Disruptive students generate negative production
externalities and cooperative hard-working students create positive production externalities. Norms of student
peer cultures often encourage student disruptions and harass nerds. In addition, learning is poorly signaled to
employers and colleges. Thus, market signals and the norms of student peer culture do not internalize the
externalities that are pervasive in school settings and as a result, students typically devote less effort to
studying than the parents and the public would wish.