The Simple Economics of Thresholds: Grades as Incentives

This paper examines how grade incentives affect student learning across a variety of ourses at two universities, using for identification the discrete rewards offered by the standard A-F letter grade system. We develop five predictions about effort provision in the presence of the thresholds that separate these discrete rewards, only one of which has been previously tested in the economics literature generally. Surprisingly, all are rejected in our data. Either these grade incentives do not influence student effort appreciably on the margin, or the additional effort is ineffective. SHSU ECONOMICS WORKING PAPER * We are extremely grateful to the three instructors who generously shared their gradebooks with us: Doug Berg, Natalie Hegwood, and Linda Sweeney. We also value helpful comments received from seminar participants at Baylor University and Sam Houston State University, and the research assistance of Mohammed Khan, Wade Pate, and Heather Watkins. We remain actively interested in obtaining other sets of grades to analyze, especially from upper-division classes and from universities with different profiles than those studied here. Student confidentiality need not be compromised in order to share those grades with us: the only information needed is the pre-exam and post-exam course average, the final exam score, and an identifier for the semester in which the course was taught. Instructors who have taught at least five hundred students in the same course at the same university and are willing to share this data with us are encouraged to contact either author. THE SIMPLE ECONOMICS OF THRESHOLDS: GRADES AS INCENTIVES Darren Grant Department of Economics and International Business Sam Houston State University Huntsville, TX 77341-2118 [email protected] William B. Green Department of Economics and International Business Sam Houston State University Huntsville, TX 77341-2118 [email protected] Abstract: This paper examines how grade incentives affect student learning across a variety of courses at two universities, using for identification the discrete rewards offered by the standard A-F letter grade system. We develop five predictions about effort provision in the presence of the thresholds that separate these discrete rewards, only one of which has been previously tested in the economics literature generally. Surprisingly, all are rejected in our data. Either these grade incentives do not influence student effort appreciably on the margin, or the additional effort is ineffective. JEL Codes: I21, A22, D10