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University Competition, Grading Standards, And Grade Inflation

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  • SERGEY V. POPOV
  • DAN BERNHARDT

Abstract

We develop a model of strategic grade determination by universities distinguished by their distributions of student academic abilities. Universities choose grading standards to maximize total wages of graduates. Job placement and wages hinge on a firm’s productivity assessment given a student’s university, grade and productivity signal. We identify conditions under which better universities set lower grading standards, exploiting the fact that firms cannot distinguish between “good” and “bad” “A”s. In contrast, a social planner sets stricter standards at better universities. We show how increases in skilled jobs drive grade inflation, and determine when grading standards fall faster at better schools.

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File URL: http://hdl.handle.net/10.1111/j.1465-7295.2012.00491.x
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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 51 (2013)
Issue (Month): 3 (07)
Pages: 1764-1778

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Handle: RePEc:bla:ecinqu:v:51:y:2013:i:3:p:1764-1778

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References

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  1. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  2. W. Bentley MacLeod & Miguel Urquiola, 2009. "Anti-Lemons: School Reputation and Educational Quality," NBER Working Papers 15112, National Bureau of Economic Research, Inc.
  3. William Chan & Hao Li & Wing Suen, 2005. "A Signaling Theory of Grade Inflation," Working Papers tecipa-222, University of Toronto, Department of Economics.
  4. Manuel Bagues & Mauro Sylos Labini & Natalia Zinovyeva, 2008. "Differential Grading Standards and University Funding: Evidence from Italy," Working Papers 2008-07, FEDEA.
  5. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-40, December.
  6. Talia Bar & Asaf Zussman, 2012. "Partisan Grading," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 30-48, January.
  7. Heather Rose & Julian R. Betts, 2004. "The Effect of High School Courses on Earnings," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 497-513, May.
  8. Betts, Julian R, 1998. "The Impact of Educational Standards on the Level and Distribution of Earnings," American Economic Review, American Economic Association, vol. 88(1), pages 266-75, March.
  9. Costrell, Robert M, 1994. "A Simple Model of Educational Standards," American Economic Review, American Economic Association, vol. 84(4), pages 956-71, September.
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Citations

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Cited by:
  1. Ehlers, Tim & Schwager, Robert, 2012. "Honest Grading, Grade Inflation and Reputation," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62051, Verein für Socialpolitik / German Economic Association.
  2. Maria Mercedes Teijeiro Álvarez (ed.), 2013. "Investigaciones de Economía de la Educación," E-books Investigaciones de Economía de la Educación, Asociación de Economía de la Educación, edition 1, volume 8, number 08, 6.
  3. Schwager, Robert, 2013. "Majority Vote on Educational Standards," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79971, Verein für Socialpolitik / German Economic Association.
  4. Ehlers, Tim & Schwager, Robert, 2012. "Honest grading, grade inflation and reputation," Center for European, Governance and Economic Development Research Discussion Papers 143, University of Goettingen, Department of Economics.
  5. Ehlers, Tim & Schwager, Robert, 2012. "Honest grading, grade inflation and reputation," Center for European, Governance and Economic Development Research Discussion Papers 143, University of Goettingen, Department of Economics.

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