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Performance-related Funding of Universities – Does more Competition Lead to Grade Inflation?

  • Thomas K. Bauer
  • Barbara S. Grave


German universities are regarded as being under-financed, inefficient, and performing below average if compared to universities in other European countries and the US. Starting in the 1990s, several German federal states implemented reforms to improve this situation. An important part of these reforms has been the introduction of indicator-based funding systems. These financing systems aimed at increasing the competition between universities by making their public funds dependent on their relative performance concerning different output measures, such as the share of students obtaining a degree or the amount of third party funds. This paper evaluates whether the indicator-based funding created unintended incentives, i.e. whether the reform caused a grade inflation. Estimating mean as well as quantile treatment effects, we cannot support the hypothesis that increased competition between universities causes grade inflation.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0288.

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Length: 23 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:rwi:repape:0288
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  1. Krautmann, Anthony C. & Sander, William, 1999. "Grades and student evaluations of teachers," Economics of Education Review, Elsevier, vol. 18(1), pages 59-63, February.
  2. Adele Atkinson & Simon Burgess & Bronwyn Croxson & Paul Gregg, 2004. "Evaluating the Impact of Performance-related Pay for Teachers in England," The Centre for Market and Public Organisation 04/113, Department of Economics, University of Bristol, UK.
  3. Reback, Randall, 2008. "Teaching to the rating: School accountability and the distribution of student achievement," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1394-1415, June.
  4. Martins, Pedro S., 2009. "Individual Teacher Incentives, Student Achievement and Grade Inflation," IZA Discussion Papers 4051, Institute for the Study of Labor (IZA).
  5. Simon Burgess & Carol Propper & Helen Slater & Deborah Wilson, 2005. "Who wins and who loses from school accountability? The distribution of educational gain in English secondary schools," The Centre for Market and Public Organisation 05/128, Department of Economics, University of Bristol, UK.
  6. David A Love & Matthew J Kotchen, 2010. "Grades, Course Evaluations, and Academic Incentives," Eastern Economic Journal, Palgrave Macmillan, vol. 36(2), pages 151-163, Spring.
  7. Martin G. Kocher & Mikulas Luptacik & Matthias Sutter, 2001. "Measuring Productivity of Research in Economics. A Cross-Country Study Using DEA," Department of Economics Working Papers wuwp077, Vienna University of Economics and Business, Department of Economics.
  8. Manuel Bagues & Mauro Sylos Labini & Natalia Zinovyeva, 2008. "Differential Grading Standards and University Funding: Evidence from Italy," Working Papers 2008-07, FEDEA.
  9. Markus Frolich & Blaise Melly, 2010. "Estimation of quantile treatment effects with Stata," Stata Journal, StataCorp LP, vol. 10(3), pages 423-457, September.
  10. B. Curtis Eaton & Mukesh Eswaran, 2008. "Differential Grading Standards and Student Incentives," Canadian Public Policy, University of Toronto Press, vol. 34(2), pages 215-236, June.
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