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Do badge systems undermine motivation in the classroom?

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Could offering a students badges for doing great work actually discourage performance? Perhaps. At our school we're looking at adopting a badge system to distribute when students demonstrate various skills particularly in our technology and information literacy class. For former scouts, the badge system will be nothing new. Learn a skill, earn a badge. I recently posted on my PLC a request to find a resource that offered digital badges we could use. James Sanders replied that he is working on a site that will provide just that at Awesome!

One teacher brought up an informed and thoughtful question regarding badges, which I thought I would explore here. He asks: 

For this upcoming school year some teachers and I are introducing badges and other gamelike features into the online community that our students work in. One of the teachers has raised concerns that badges will stifle the students'  intrinsic motivation, that students will focus more on getting badges than the work they're doing and that this extrinsic motivation will ultimately have negative consequences. But on the other hand, I see some of the winners from this year's DML competition and it seems all good.
What do you all think?
Here is a thoughtful post by Chris Sloan that raises the question more deeply. 

If you read this blog, you'll understand how well his concerns align with my approach to motivation and learning. Isn't a badge just a carrot, and don't carrots actually undermine motivation? The truth is, it depends on the kind of work we want to get from our students.

Once again, I'll refer to Daniel Pink's work, this time an article from The Harvard Business Review, "A Radical Prescription for Sales." In it he addresses many of the concepts he explained in Drive. He divides tasks into two categories: algorithmic and heuristic.
... The effectiveness of motivators varies with the task. In particular, they have discovered that contingent rewards—I call them “if then” rewards, as in “If you do this, then you get that”—work well with routine tasks social scientists dub “algorithmic.” Think stuffing envelopes quickly or turning the same screw the same way on an assembly line. The promise of a reward, especially cash, excites our attention, and we focus narrowly on getting the job done.
However, those same if-then rewards turn out to be far less effective for complex, creative, conceptual endeavors—what psychologists call “heuristic” work. Think inventing a new product or working with a client to tackle a problem neither of you has confronted before. For those projects, you need a broader perspective, which, research shows, can be inhibited by if-then rewards.
Badges are indeed if-then rewards, therefore perhaps we should only apply them to algorithmic tasks. Of course we're not not asking our students to stuff envelopes or work on an assembly line. I hope. However, I think some skills we want our students to acquire fit more in the algorithmic side of the spectrum. For example, I want my students to be able to identify and fix a comma splice. There is only one way to identify a comma splice and only three ways to fix them. This mechanic skill is as algorithmic as it gets. Another example in the English classroom would be metric verse. Identifying and composing metric verse is also algorithmic. Therefore, I think it would be entirely appropriate (and awesome) to have a "Comma Splice Assassin" badge and a "Metric Verse Master" badge. 
The badges that would undermine motivation, if Daniel Pink is right, are the badges that reward heuristic work, like composing a sentence that conveys a complex idea clearly or composing a sonnet that reveals insight into a subtle relationship. A "creative kid" badge would fail. A really bad way to get kids to be innovative is to tell them to be innovative. A worse way would be to promise them an innovative patch. Creativity and innovation provide their own rewards. We teachers need to create an environment where students are motivated to be innovative, and for that we must provide autonomy, mastery, and purpose. See the video below.

Am I correct in labeling the acquisition of concrete skills such as sentence mechanics, vocabulary, arithmetic, and taxonomy as algorithmic? Is there a spectrum with algorithmic on one side and heuristic on the other? If so, how do our different academic goals fit within this spectrum?

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