Perfect for me would both. The kids should have fun and also learning. I would buy good materials for the school and also better food to they get energy for the study. I would take test but not portfolio.
I incentives the students have conversations with them, advising, rewarding them for the good things they do. I don't punish them because when you punish them, some kids become rebels and bratty. For the students who don't care about school, I would treat to know what happen at house, if they have any problem or simply to know why they who don;t care about school. There many students that are very smart by nature, I would put them more work and hard classes.
I change about school the food, many time the school food is not good nor healthy. Also change unnecessary things like portfolio. There many kids that are really bad about school, if I decided pay the kids to improve their grades but change nothing, I don't continue paying for improve their grades, I would treat other methods. I don't change the school day nor the location, I would make more school because the country would progress while more professional people there in the country.
I think it's better to focus on positive incentives because of this way the students not grab rebellion. The competition sometimes is good, some students love the competition but when they know there is a prize for the winner. I would want some fairness because of this way all competition would be equivalent.