Can Fighting Grade Inflation Help the Bottom Line?
28 Pages Posted: 11 Mar 2007
Date Written: March 2007
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: Suggested Citation