University Competition, Grading Standards and Grade Inflation

Economic Inquiry, Forthcoming

27 Pages Posted: 6 Nov 2010 Last revised: 15 May 2012

See all articles by Sergey V. Popov

Sergey V. Popov

Cardiff University - Cardiff Business School; National Research University Higher School of Economics (Moscow)

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Date Written: November 4, 2010

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.

Keywords: grading standards, grading inflation, information

JEL Classification: I21

Suggested Citation

Popov, Sergey V. and Bernhardt, Dan, University Competition, Grading Standards and Grade Inflation (November 4, 2010). Economic Inquiry, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1703109 or http://dx.doi.org/10.2139/ssrn.1703109

Sergey V. Popov (Contact Author)

Cardiff University - Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

National Research University Higher School of Economics (Moscow) ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

HOME PAGE: http://https://sites.google.com/site/sergeyvpopov/

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

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