University Competition, Grading Standards, and Grade Inflation

Sergey V. Popov*, Dan Bernhardt

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

24 Citations (Scopus)


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 badA''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. (JEL I21)

Original languageEnglish
Pages (from-to)1764-1778
Number of pages15
JournalEconomic Inquiry
Issue number3
Early online date02 Dec 2012
Publication statusPublished - Jul 2013


  • grading standards
  • grading inflation
  • information

ASJC Scopus subject areas

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


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