Honest Grading, Grade Inflation and Reputation

Tim Ehlers and Robert Schwager

VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century from Verein für Socialpolitik / German Economic Association

Abstract: When grades lose their informative value because the percentage of students receiving the best grade rises without any corresponding increase in ability, this is called grade inflation. Conventional wisdom says that such grade inflation is unavoidable since it is essentially costless to award good grades. In this paper, we point out an effect driving into the opposite direction: Grade inflation is not actually costless, since it has an impact on future cohorts of graduates, or, put differently, by grading honestly, a school can build up reputation. Introducing a concern for reputation into an established signaling model of grading, we show that this mechanism reduces or even avoids grade inflation.

JEL-codes: D82 I21 I23 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc12:62051

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