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University Competition, Grading Standards and Grade Inflation

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  • Popov, Sergey V.
  • Bernhardt, Dan

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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26461.

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Date of creation: 04 Nov 2010
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Handle: RePEc:pra:mprapa:26461

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Keywords: grading standards; grading inflation; information;

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  1. 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.
  2. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  3. W. Bentley MacLeod & Miguel Urquiola, 2009. "Anti-Lemons: School Reputation and Educational Quality," NBER Working Papers 15112, National Bureau of Economic Research, Inc.
  4. Costrell, Robert M, 1994. "A Simple Model of Educational Standards," American Economic Review, American Economic Association, vol. 84(4), pages 956-71, September.
  5. Talia Bar & Asaf Zussman, 2012. "Partisan Grading," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 30-48, January.
  6. 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, 08.
  7. 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.
  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. Manuel Bagues & Mauro Sylos Labini & Natalia Zinovyeva, 2008. "Differential Grading Standards and University Funding: Evidence from Italy," Working Papers 2008-07, FEDEA.
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Cited by:
  1. 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.
  2. 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.
  3. 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, 8.
  4. repec:got:cegedp:143 is not listed on IDEAS
  5. 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.

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