Grade Inflation and Education Quality

We consider a game in which schools compete to place graduates in two distinct ways: by investing in the quality of education, and by strategically designing grading policies. In equilibrium, schools issue grades that do not perfectly reveal graduate abilities. This leads evaluators to have less-accurate information when hiring or admitting graduates. However, compared to fully-revealing grading, strategic grading motivates greater investment in educating students, increasing average graduate ability. Allowing grade inflation and related grading strategies can increase the probability that evaluators select high-ability graduates. ⇤Boleslavsky: University of Miami, Department of Economics, Coral Gables, FL 33146, [email protected]. Cotton: University of Miami School of Business Administration, Department of Economics, Coral Gables, FL 33146, [email protected]. BOLESLAVSKY AND COTTON: GRADE INFLATION 1 Grades A and B are sometimes given too readily – Grade A for work of no very high merit, and Grade B for work not far above mediocrity. ... One of the chief obstacles to raising the standards of the degree is the readiness with which insincere students gain passable grades by sham work. –Report of the Committee on Raising the Standard, Harvard University, 1894 1