Watching video "University Competition and Grading Standards"

Themes: Economics   English   seminar   CInSt   2010  
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Some universities have more students with high GPAs than others, and claim that it is because they have better students. We consider a setting in which universities internalize how their grading standards affect the equilibrium wages of graduates, and seek to maximize the total wage bill of their graduates. Universities are distinguished by the distribution of student abilities. We show that in equilibrium, universities with better distributions of students set softer grading standards—the marginal "A" student at better universities is less able than the marginal student at lesser schools. Indeed, better universities set grading standards that are below the social optimum, while worse universities set excessively strict grading standards. Improving the distribution of student abilities at lesser universities causes the better universities to raise their grading standards, but can have an ambiguouse effect on grading standards at the lesser school.

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