Degrading the Grade: Grading Variance as Evidence of Shirking

Thayer Morrill

Papers from arXiv.org

Abstract: Variation in grading standards across instructors who teach the same students is evidence of a moral hazard problem, whether or not grades are inflated. The optimal standard is the same for every section of a course, yet grades vary widely across sections. We present a principal-agent model in which instructors who know the optimal standard still depart from it, leniently or harshly, depending on their incentives. Penalizing deviations from the department average leaves the average unchanged but compresses grading variance, which raises student welfare. Disclosing the same information to students instead increases grading variance.

Date: 2026-10
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