Can Fighting Grade Inflation Help the Bottom Line?

28 Pages Posted: 11 Mar 2007

See all articles by Arthur Caplan

Arthur Caplan

Utah State University - Huntsman School of Business

John Gilbert

Utah State University - College of Business - Department of Economics

Date Written: March 2007

Abstract

This paper uses a rich set of student transcript data to estimate the economic cost incurred by a university when it does not adopt a 'mean-shift grading policy' to fight grade inflation. In a naïve scenario, where potential moral hazard constraints are ignored or assumed non-binding, the estimated economic cost is approximately $4,600 per student over a four-year undergraduate career. In a more realistic scenario, where moral hazard constraints are assumed to reach $2,300 per student over four years, the corresponding number of courses the typical student fails under the mean-shift policy is also reduced by half. One possible ramification of adopting a mean-shift grading policy to recoup the economic cost is investigated. We find that a university may be able to promote greater effort on the part of both students and faculty by encouraging faculty to toughen their grading policies.

JEL Classification: D21, D61, I20

Suggested Citation

Caplan, Arthur and Gilbert, John, Can Fighting Grade Inflation Help the Bottom Line? (March 2007). Available at SSRN: https://ssrn.com/abstract=969824 or http://dx.doi.org/10.2139/ssrn.969824

Arthur Caplan (Contact Author)

Utah State University - Huntsman School of Business ( email )

Department of Economics
3500 Old Main Hill
Logan, UT 84322-3500
United States
435-797-0775 (Phone)
435-797-2701 (Fax)

John Gilbert

Utah State University - College of Business - Department of Economics ( email )

3530 Old Main Hill
Logan, UT 84322-3530
United States
435-797-2314 (Phone)
435-797-2701 (Fax)

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