Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70232
Authors: 
Ehlers, Tim
Schwager, Robert
Year of Publication: 
2012
Series/Report no.: 
Discussion Papers, Center for European Governance and Economic Development Research 143
Abstract: 
When grades lose their informative value because the percentage of students receiving the best grade rises without any corresponding increase in ability, this is called grade inflation. Conventional wisdom says that such grade inflation is unavoidable since it is essentially costless to award good grades. In this paper, we point out an effect driving into the opposite direction: Grade inflation is not actually costless, since it has an impact on future cohorts of graduates, or, put differently, by grading honestly, a school can build up reputation. Introducing a concern for reputation into an established signaling model of grading, we show that this mechanism reduces or even avoids grade inflation.
Subjects: 
grading
signaling
reputation
education
JEL: 
I21
I23
D82
Document Type: 
Working Paper

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