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A signalling model of school grades: centralized versus decentralized examinations

  • De Paola, Maria
  • Scoppa, Vincenzo

In this paper we examine the signalling value for skills of different examination systems in relation to errors that may affect grades obtained by students. Firm use school grades as a signal of the effective skills of workers, taking into account that evaluation are effected by stochastic shocks. We show that more precise evaluation systems, being associated to a higher reactivity of wages to school grades, induce an higher level of student effort. However, the effect is heterogeneous: low ability students tend to react less compared to high ability students. Moreover, from our analysis, it emerges that individuals endowed with low abilities may prefer less accurate evaluation systems. Nevertheless, when productivity increases the convenience of these systems reduces and the number of individuals preferring them shrinks. Our analysis highlights an important trade-off between centralized and decentralized evaluation systems. Frequent evaluations, typical of decentralized systems, reduce the impact on grades of errors that influence student performance and in this way diminish signal noise, on the other hand, different teachers generally adopt different performance assessment standards, and this tends to produce noisier evaluations. Conversely, centralized systems use common evaluation standards, but their frequency is limited by relevant administration costs and then produce evaluations that are more affected by errors influencing student performance. In the final part of the paper we investigate the relationship between the optimal class size and evaluation systems. We show that under decentralized evaluation systems the class size also affects the signal noise, since larger classes may reduce the frequency of evaluations undertaken by teachers.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7866.

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Date of creation: 16 Jan 2008
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Handle: RePEc:pra:mprapa:7866
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  1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  2. Bishop, J., 1997. "The Effect of national Standards and Curriculum-Based Exams on Achievement," Papers 97-01, Cornell - Center for Advanced Human Resource Studies.
  3. Bishop, John, 2006. "Drinking from the Fountain of Knowledge: Student Incentive to Study and Learn - Externalities, Information Problems and Peer Pressure," Handbook of the Economics of Education, Elsevier.
  4. Gianni De Fraja & Pedro Landeras, . "Could Do Better: The Effectiveness of Incentives and Competition in Schools," Discussion Papers 02/11, Department of Economics, University of York.
  5. Lillard, Dean R. & DeCicca, Philip P., 2001. "Higher standards, more dropouts? Evidence within and across time," Economics of Education Review, Elsevier, vol. 20(5), pages 459-473, October.
  6. John Bishop & Ludger Wossmann, 2004. "Institutional Effects in a Simple Model of Educational Production," Education Economics, Taylor & Francis Journals, vol. 12(1), pages 17-38.
  7. Bishop, John H, 1997. "The Effect of National Standards and Curriculum-Based Exams on Achievement," American Economic Review, American Economic Association, vol. 87(2), pages 260-64, May.
  8. Thomas S. Dee & Brian A. Jacob, 2006. "Do High School Exit Exams Influence Educational Attainment or Labor Market Performance?," NBER Working Papers 12199, National Bureau of Economic Research, Inc.
  9. Bishop, John H. & Mane, Ferran, 2001. "The impacts of minimum competency exam graduation requirements on high school graduation, college attendance and early labor market success," Labour Economics, Elsevier, vol. 8(2), pages 203-222, May.
  10. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1125-1156.
  11. Victor Lavy, 2009. "Performance Pay and Teachers' Effort, Productivity, and Grading Ethics," American Economic Review, American Economic Association, vol. 99(5), pages 1979-2011, December.
  12. David N. Figlio & Lawrence S. Getzler, 2002. "Accountability , Ability and Disability: Gaming the System," NBER Working Papers 9307, National Bureau of Economic Research, Inc.
  13. Glewwe, Paul & Kremer, Michael, 2006. "Schools, Teachers, and Education Outcomes in Developing Countries," Handbook of the Economics of Education, Elsevier.
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