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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.

Suggested Citation

  • William Chan & Hao Li & Wing Suen, 2005. "A Signaling Theory of Grade Inflation," Working Papers tecipa-222, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-222
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    Cited by:

    1. Contreras, Dante & Gallegos, Sebastian & Meneses, Francisco, 2009. "Determinantes del desempeño universitario: ¿Importa la habilidad relativa?
      [University performance determinants: does relative ability matter?]
      ," MPRA Paper 23320, University Library of Munich, Germany.
    2. 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, vol. 38(1), pages 95-107, August.
    3. Robert Schwager, 2018. "Majority Vote on Educational Standards," CESifo Working Paper Series 6845, CESifo Group Munich.
    4. Maria De Paola, 2011. "Easy grading practices and supply–demand factors: evidence from Italy," Empirical Economics, Springer, vol. 41(2), pages 227-246, October.
    5. 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.
    6. Philip Babcock, 2010. "Real Costs Of Nominal Grade Inflation? New Evidence From Student Course Evaluations," Economic Inquiry, Western Economic Association International, vol. 48(4), pages 983-996, October.
    7. Hernández-Julián, Rey & Looney, Adam, 2016. "Measuring inflation in grades: An application of price indexing to undergraduate grades," Economics of Education Review, Elsevier, vol. 55(C), pages 220-232.
    8. Talia Bar & Vrinda Kadiyali & Asaf Zussman, 2012. "Putting Grades in Context," Journal of Labor Economics, University of Chicago Press, vol. 30(2), pages 445-478.
    9. 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.
    10. Damiano, Ettore & Li, Hao & Suen, Wing, 2008. "Credible ratings," Theoretical Economics, Econometric Society, vol. 3(3), September.
    11. Alessandro Tampieri, 2016. "Social background effects on school and job opportunities," Education Economics, Taylor & Francis Journals, vol. 24(5), pages 496-510, September.
    12. Oliver Himmler & Robert Schwager, 2013. "Double Standards in Educational Standards – Do Schools with a Disadvantaged Student Body Grade More Leniently?," German Economic Review, Verein für Socialpolitik, vol. 14(2), pages 166-189, May.
    13. Rick Harbaugh & Eric Rasmusen, 2012. "Coarse Grades: Informing the Public by Withholding Information," Working Papers 2012-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    14. Gwendolyn R. Tecson, 2011. "Trends in Grades, UP School of Economics," UP School of Economics Discussion Papers 201102, University of the Philippines School of Economics.
    15. repec:bla:manchs:v:85:y:2017:i:1:p:106-131 is not listed on IDEAS
    16. Chakraborty, Archishman & Harbaugh, Rick, 2007. "Comparative cheap talk," Journal of Economic Theory, Elsevier, vol. 132(1), pages 70-94, January.
      • Archishman Chakraborty & Rick Harbaugh, 2004. "Comparative Cheap Talk," Working Papers 2004-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    17. A. Tampieri, 2011. "Students' Social Origins and Targeted Grade Inflation," Working Papers wp801, Dipartimento Scienze Economiche, Universita' di Bologna.
    18. Maria, De Paola, 2008. "Are easy grading practices induced by low demand? Evidence from Italy," MPRA Paper 14425, University Library of Munich, Germany.
    19. Schwager, Robert, 2012. "Grade inflation, social background, and labour market matching," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 56-66.
    20. Cory Koedel, 2010. "Grading Standards in Education Departments at Universities," Working Papers 1002, Department of Economics, University of Missouri, revised 13 Jun 2011.

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