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A Signaling Theory Of Grade Inflation

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  • William Chan
  • Li Hao
  • Wing Suen

Abstract

When employers cannot tell whether a school truly has many good students or just gives easy grades, a school has incentives to inflate grades to help its mediocre students, despite concerns about preserving the value of good grades for its good students. We construct a signaling model where grades are inflated in equilibrium. The inability to commit to an honest grading policy reduces the efficiency of job assignment and hurts a school. Grade inflation by one school makes it easier for another school to do likewise, thus providing a channel to make grade exaggeration contagious. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • William Chan & Li Hao & Wing Suen, 2007. "A Signaling Theory Of Grade Inflation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 1065-1090, August.
    • Handle: RePEc:ier:iecrev:v:48:y:2007:i:3:p:1065-1090
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