Coarse Grades: Informing the Public by Withholding Information

25 Pages Posted: 24 Oct 2012

See all articles by Rick Harbaugh

Rick Harbaugh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University - Department of Economics

Eric Bennett Rasmusen

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: October 24, 2012

Abstract

Certifiers of quality often report only coarse grades to the public despite having measured quality more finely, e.g., "Pass" or "Certified" instead of "73 out of 100." Why? We show that coarse grades result in more information being provided to the public because the coarseness encourages those of middling quality to apply for certification. Dropping exact grading in favor of the best coarse grading scheme always reduces public uncertainty because the extra participation outweighs the coarser reporting. In some circumstances, the coarsest meaningful grading scheme, pass-fail grading, is the most informative.

Keywords: certification, eco-labels, persuasion, standards

JEL Classification: D82, L15

Suggested Citation

Harbaugh, Rick and Rasmusen, Eric Bennett, Coarse Grades: Informing the Public by Withholding Information (October 24, 2012). Available at SSRN: https://ssrn.com/abstract=2166353 or http://dx.doi.org/10.2139/ssrn.2166353

Rick Harbaugh (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

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HOME PAGE: http://www.bus.indiana.edu/riharbau/

Indiana University - Department of Economics ( email )

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Eric Bennett Rasmusen

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

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HOME PAGE: http://rasmusen.org

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