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A Signaling Theory of Grade Inflation

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  • William Chan
  • Hao Li
  • Wing Suen

Abstract

When employers cannot tell whether a school truly has many good students or just gives easy grades, schools have an incentive to inflate grades to help mediocre students, despite concerns about preserving the value of good grades for good students. We construct a signaling model where grades are inflated in equilibrium. The inability to commit to an honest grading policy reduces the informativeness of grades and hurts schools. Grade inflation by one school makes it easier for another school to fool the market with inflated grades. Easy grades are strategic complements, providing a channel to make grade exaggeration contagious.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-222.

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Length: 40 pages
Date of creation: 17 Jun 2005
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-222

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Cited by:
  1. Alessandro Tampieri, 2009. "Social Background Effects on School and Job Opportunities," Discussion Papers in Economics, Department of Economics, University of Leicester 09/26, Department of Economics, University of Leicester, revised Sep 2010.
  2. Babcock, Phillip, 2009. "Real Costs of Nominal Grade Inflation? New Evidence from Student Course Evaluations," University of California at Santa Barbara, Economics Working Paper Series qt4823c3jx, Department of Economics, UC Santa Barbara.
  3. Rick Harbaugh & Eric Rasmusen, 2012. "Coarse Grades: Informing the Public by Withholding Information," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2012-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  4. Maria De Paola, 2011. "Easy grading practices and supply–demand factors: evidence from Italy," Empirical Economics, Springer, Springer, vol. 41(2), pages 227-246, October.
  5. Himmler, Oliver & Schwager, Robert, 2007. "Double Standards in Educational Standards: Are Disadvantaged Students Being Graded More Leniently?," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 07-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. A. Tampieri, 2011. "Students' Social Origins and Targeted Grade Inflation," Working Papers wp801, Dipartimento Scienze Economiche, Universita' di Bologna.
  7. Sergey V. Popov & Dan Bernhardt, 2013. "University Competition, Grading Standards, And Grade Inflation," Economic Inquiry, Western Economic Association International, vol. 51(3), pages 1764-1778, 07.
  8. Maria, De Paola, 2008. "Are easy grading practices induced by low demand? Evidence from Italy," MPRA Paper 14425, University Library of Munich, Germany.
  9. Damiano, Ettore & Li, Hao & Suen, Wing, 2006. "Credible Ratings," Microeconomics.ca working papers, Vancouver School of Economics damiano-06-01-17-01-56-45, Vancouver School of Economics, revised 17 Jan 2006.
  10. Gwendolyn R. Tecson, 2011. "Trends in Grades, UP School of Economics," UP School of Economics Discussion Papers, University of the Philippines School of Economics 201102, University of the Philippines School of Economics.
  11. Rebecca Summary & William Weber, 2012. "Grade inflation or productivity growth? An analysis of changing grade distributions at a regional university," Journal of Productivity Analysis, Springer, Springer, vol. 38(1), pages 95-107, August.
  12. Cory Koedel, 2010. "Grading Standards in Education Departments at Universities," Working Papers, Department of Economics, University of Missouri 1002, Department of Economics, University of Missouri, revised 13 Jun 2011.
  13. Schwager, Robert, 2012. "Grade inflation, social background, and labour market matching," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 82(1), pages 56-66.

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