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University Competition, Grading Standards, And Grade Inflation

  • SERGEY V. POPOV
  • DAN BERNHARDT

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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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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  1. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  2. Costrell, Robert M, 1994. "A Simple Model of Educational Standards," American Economic Review, American Economic Association, vol. 84(4), pages 956-71, September.
  3. 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.
  4. MacLeod, Bentley, 2009. "Anti-Lemons: School Reputation and Educational Quality," Department of Economics, Working Paper Series qt3rc708kd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. 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.
  6. 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.
  7. Talia Bar & Asaf Zussman, 2012. "Partisan Grading," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 30-48, January.
  8. Coate, S. & Loury, G.C., 1992. "Will Affirmative Action Policies Eliminate Negative Stereotypes?," Papers 3, Boston University - Department of Economics.
  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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