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Coarse Grades: Informing the Public by Withholding Information

Rick Harbaugh () and Eric Rasmusen ()

No 2012-06, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: Certifiers of quality often report only coarse grades to the public despite having measured quality more finely, e.g., "Pass" or "Certified" instead of "73 out of 100". Why? We show that coarse grades result in more information being provided to the public because the coarseness encourages those of middling quality to apply for certification. Dropping exact grading in favor of the best coarse grading scheme always reduces public uncertainty because the extra participation outweighs the coarser reporting. In some circumstances, the coarsest meaningful grading scheme, pass-fail grading, is the most informative.

Keywords: certification; grades; disclosure (search for similar items in EconPapers)
JEL-codes: D82 L15 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-cta
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http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2012-06-harbaugh-rasmusen.pdf (application/pdf)

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Journal Article: Coarse Grades: Informing the Public by Withholding Information (2018) Downloads
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