Rewarding schooling success and perceived returns to education: Evidence from India

•Financial recognition for schooling effort increases perceived returns to education.•Fellows perceive higher mean (0.74 SD) and decreased variance of earnings (1.03 SD).•Fellowship recipients hold more accurate perceptions of wage earnings.•Parents update their beliefs about the returns to education for all their progeny.•Fellows are more motivated to study or to seek wage information in the market.

This paper tests two specific mechanisms through which individuals can form expectations about returns to investments in education: recognition for schooling performance, and exposure to successful students through family or social networks. Using a regression discontinuity design, we study the impact of two fellowship programs recognizing educational performance in secondary schools in India. We find that the fellowship award is associated with a significant increase in the perceived value of education, by both increasing the perceived mean of earnings (0.74 standard deviations (SD)) and decreasing the perceived variance in earnings (1.03 SD) associated with additional years of schooling. The effects spill over only selectively to social and family networks. Peers exposed to successful students do not update their beliefs but parents of fellows report higher perceived returns to education. Peers of fellows are however more informed about fellowship opportunities and report a higher intention to apply for the fellowship, thus contributing to the persistence of the potential impact of the fellowship across different cohorts.