Optimal Grading

42 Pages Posted: 29 May 2007 Last revised: 24 Feb 2013

Date Written: January 11, 2013


We model the teacher-student relationship as an agency problem, where teachers are concerned with human capital formation and students --- ability signaling. The model's distinctive feature is that with grading rules unobservable for the job market the teacher finds grades costless incentives. Then, the empirical grading patterns of grade compression and inflation, mismatch between students' grades and their abilities can all be the outcomes of optimal screening. With observable grading rules, the optimal grading rule perfectly screens students provided certain conditions hold. We apply the model to discuss policy applications such as "No Child Left Behind."

Keywords: Principal-agent model, teacher-student relationship, costless rewards, grading rules, mismatch of abilities and grades, grade inflation, teacher incentives

JEL Classification: D80, I20

Suggested Citation

Zubrickas, Robertas, Optimal Grading (January 11, 2013). Available at SSRN: https://ssrn.com/abstract=989322 or http://dx.doi.org/10.2139/ssrn.989322

Robertas Zubrickas (Contact Author)

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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