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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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Suggested Citation

  • 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, July.
  • Handle: RePEc:bla:ecinqu:v:51:y:2013:i:3:p:1764-1778
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    File URL: http://hdl.handle.net/10.1111/j.1465-7295.2012.00491.x
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    1. 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.
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    3. Dubey, Pradeep & Geanakoplos, John, 2010. "Grading exams: 100,99,98,... or A,B,C?," Games and Economic Behavior, Elsevier, vol. 69(1), pages 72-94, May.
    4. 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 266-275, March.
    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, August.
    6. Manuel Bagues & Mauro Sylos Labini & Natalia Zinovyeva, 2008. "Differential Grading Standards and University Funding: Evidence from Italy," CESifo Economic Studies, CESifo, vol. 54(2), pages 149-176.
    7. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
    8. Talia Bar & Asaf Zussman, 2012. "Partisan Grading," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 30-48, January.
    9. Robertas Zubrickas, 2015. "Optimal Grading," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 751-776, August.
    10. Coate, Stephen & Loury, Glenn C, 1993. "Will Affirmative-Action Policies Eliminate Negative Stereotypes?," American Economic Review, American Economic Association, vol. 83(5), pages 1220-1240, December.
    11. Michael Ostrovsky & Michael Schwarz, 2010. "Information Disclosure and Unraveling in Matching Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 34-63, May.
    12. Pradeep Dubey & John Geanakoplos, 2004. "Grading Exams: 100, 99, ..., 1 or A, B, C? Incentives in Games of Status," Cowles Foundation Discussion Papers 1467, Cowles Foundation for Research in Economics, Yale University.
    13. Costrell, Robert M, 1994. "A Simple Model of Educational Standards," American Economic Review, American Economic Association, vol. 84(4), pages 956-971, September.
    14. 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.
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    Cited by:

    1. repec:spr:scient:v:115:y:2018:i:1:d:10.1007_s11192-018-2666-1 is not listed on IDEAS
    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. Robert Schwager, 2018. "Majority Vote on Educational Standards," CESifo Working Paper Series 6845, CESifo Group Munich.
    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.
    6. repec:bla:manchs:v:85:y:2017:i:1:p:106-131 is not listed on IDEAS
    7. 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.
    8. 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, July-Dece.
    9. Manuel Salas Velasco, 2011. "More than just good grades: candidates’ perceptions about the skills and attributes employers seek in new graduates," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 13(3), pages 499-517, June.

    More about this item

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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