Optimal School Design
40 Pages Posted: 8 Jul 2021 Last revised: 9 Jul 2021
Date Written: June 30, 2021
We consider a population of students with heterogeneous characteristics, and examine the dual design problem consisting of (a) allocating students to schools and (b) choosing how to grade students in school, with a view to optimizing students' incentives to work hard. We show that any optimal school design exhibits stratification, and more lenient grading at the top-tier schools than at the bottom-tier schools. Our results highlight a novel trade-off between the size of the pie and its equal division in the context of school design.
Keywords: Education, Moral Hazard, Grading, Peer Effects, Stratification
JEL Classification: D02, D82, D86
Suggested Citation: Suggested Citation