University competition, grading standards, and grade inflation

Sergey V. Popov, Dan Bernhardt

Research output: Contribution to journalArticlepeer-review


We develop a model of strategic grade determination by universities distinguished by their distributions of student academic abilities. Universities choose grading standards to maximize the total wages of graduates, taking into account how the grading standards affect firms' productivity assessment and job placement. We identify conditions under which better universities set lower grading standards, exploiting the fact that firms cannot distinguish between "good" and "bad""A''s. In contrast, a social planner sets stricter standards at better universities. We show how increases in skilled jobs drive grade inflation, and determine when grading standards fall faster at better schools.

Original languageEnglish (US)
Pages (from-to)1764-1778
Number of pages15
JournalEconomic Inquiry
Issue number3
StatePublished - Jul 2013

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics


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