About 9 years ago I wrote some essays about thinking of eLearning (then we called it ALN) as an incentive device. I'm not going to claim those were very good, but they are reflective of my thinking at that time and perhaps also indicate how an economist might think about learning technology.
In one of those essays (you can still find it online here) I argued that the instructor affects the students time allocation outside the classroom via the way the instructor assesses student learning. Under the typical pattern with most of the course grade relying on midterms and the final exam, there will be cramming before each test and then comparatively little effort during the rest of the course. Similarly, those courses that require term papers encourage many students to pull all nighters so they can complete a respectable draft
I argued further that there are natural times during the semester to give such high stakes assessments. In a 15 week semester an instructor who gives two midterms and a final will give the midterms around the 5th week and the 10th week. Terms papers are ususally due the last week of class or during final exam week. Thus student time gets very scarce during certain parts of the semester as the various courses compete for the student time via the assessments that are made in these courses.
I therefore argued that there would be a benefit by giving more frequent and lower stakes assessments to students so that they would take a more uniform effort. And if the grading of those low stakes assessments was problematic (insufficient course staff or instructor unwillingness to do all the grading) there was the then relatively novel quiz engines - CyberProf and Mallard - that would do the evaluation automatically. Authoring the content initially might be a bear, but once that was done thereafter the costs of assessing the student work was minimal.
The logic in the argument is fine, but there are aspects that are missing in the argument that really need to considered. While in courses with a significant Math component, in particular, one can ask fairly sophisticated analytic questions that do test student comprehension of an idea, one can't get students to do more complex problem solving or framing of issues via the automated grading of student work. One needs a different mechanism for that, something that is more open ended. Further, if you make it the least bit hard, so the student has to show some real creativity in getting a satisfactory result, then the underlying issue has to be "big" in some sense to engage the student and keep the student on task. Otherwise the student is apt to give up, asking "why am I knocking my brains out? What's the point?"
So bigger projects have some benefit in keeping the student's interest and in teaching the student to "think out of the box." But while student work can be evaluated when the work is very early on and in a formative state, where the feedback from the instructor is aimed at improving the draft and helping the student get unstuck if he happens to feel stuck, it is nonetheless true that we're back in the old game where such projects might encourage procrastination and then all nighters.
I don't think there is any magical devices to break this dilemma but some ideas are: (a) Don't let the students choose the topic of the project initially, keep the project topic as an instructor perogative. The instructor can then focus on topics where the studetns are apt ot make progress and where there is intrinsic interest to keep the student going. (b) Have the work done in teams (not a novel suggestion) so the students can play of each other and use their comraderie as a motivation for continuing on with the work. (d) While some struggling by the students is probably good, the instructor needs to intercede if the students seem stuck for too long. (e) Perhaps having the students keep a journal about the work is also important, especially on very big projects. The journal entries, written daily or every other day, should help the student both in being reflective and in marking the progress that is being made.