I worry that such an incentives structure will affect standards in institutions with weak faculty governance and protection of academic freedom: "We need these students to pass these credits, or we lose money." Better incentive structure: if public funding plus current tuition is sufficient for an institution's operating expenses (a rather big if, as I'm aware in Florida), keep the hands off the potential perverse incentives inside the curriculum and give students an incentive to do well by keeping tuition stable for students as long as they make steady progress towards degrees. In other words, tuition stability (or a cap on rising tuition) is guaranteed if students are doing well. The institutional incentives then can be geared towards summary graduation measures, to some extent.
I'd like to propose that people be more judicious and precise in their use of the term "perverse incentives" by not applying it to any incentive that could theoretically cause someone to act in bad faith. Sherman is a college professor so I assume he assigns students to write papers and then grades them. Student have strong incentives to get good grades, or at least good enough grades, so they can earn a degree, go to grad school etc. The problem of plagiarism in higher education is well-known, made much easier by the Internet. Does that mean the Sherman or his university have created "perverse incentives" for cheating by grading papers? Of course not.
"Perverse incentives" are those that logically compel people to act in bad faith, or offer incentives so compelling that they overwhelm others. I don't think that's at all what's going on in Washington State. Sure, a community college could, in theory, betray its ideals and its students by watering down curricula and standards. Or it could do the right thing, look to its high-performing peers, and try to do a better job teaching them. I don't think the incentives to take the former, dishonorable path are nearly strong enough to warrant the term "perverse." And I'm always amazed that educators are so quick to assume that great numbers of their peers will sell their students down the river whenever the opportunity presents itself.
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