Performance-related Funding of Universities: Does More Competition Lead to Grade Inflation?

Thomas Bauer () and Barbara Grave

No 6073, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: German universities are regarded as being under-financed, inefficient, and performing below average if compared to universities in other European countries and the US. Starting in the 1990s, several German federal states implemented reforms to improve this situation. An important part of these reforms has been the introduction of indicator-based funding systems. These financing systems aimed at increasing the competition between universities by making their pubic funds dependent on their relative performance concerning different output measures, such as the share of students obtaining a degree or the amount of third party funds. This paper evaluates whether the indicator-based funding created unintended incentives, i.e. whether the reform caused grade inflation. Estimating mean as well as quantile treatment effects, we cannot support the hypothesis that increased competition between universities causes grade inflation.

Keywords: grade inflation; higher education funding; university competition (search for similar items in EconPapers)
JEL-codes: H52 I21 I22 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-10
New Economics Papers: this item is included in nep-edu, nep-eur, nep-lab and nep-sog
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Performance-related Funding of Universities – Does more Competition Lead to Grade Inflation? (2011)
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