Coarse Grades: Informing the Public by Withholding Information

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 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. JEL: D82, L15. ∗Harbaugh: Kelley School of Business, Indiana University, Bloomington, Indiana ,[email protected]. Rasmusen: Dan R. and Catherine M. Dalton Professor, Department of Business Economics and Public Policy, Kelley School of Business, Indiana University. Bloomington, Indiana, [email protected]. We thank Mimi Chan, Mikkel Jakobsen, and Dan Zhao for research assistance, and Michael Baye, Dan Klerman, and participants in talks at the BEPP Brown Bag Lunch, Baylor University, and the IIOC and Summer Econometric Society meetings for helpful comments.